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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Shri Amarjit Singh
आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee’s appeal for A.Y. 2016-17, arises from order of the CIT(A)- 13, Ahmedabad dated 12-07-2018, in proceedings under section 201 of the Income Tax Act, 1961; in short “the Act”.
The assessee has raised following grounds of appeal:-
Page No 2 Gokul Refoils & Solvent Ltd. vs. Dy. CIT, International Taxation “1. The learned CIT(A) has erred both in law and on the facts of the case in confirming AO's act of holding that the appellant is required to pay Rs.2,32,319/- being aggregate of sum deductible u/s 195 r.w.s. 201(1) alongwith interest u/s 201 (1A) of the Act.
2. The learned CIT(A) has erred both in law and on the facts of the case in confirming the action of AO of holding that s.195 of the Act is applicable to the foreign remittance of Rs.56,70,000/- made towards demurrage charges.
Both the lower authorities failed to appreciate that the remittance is not at all chargeable to tax in India and therefore there was no obligation to deduct tax at source. Accordingly, there was no question of invoking provisions of 8.201(1) and S. 201(1A) of the Act.
4. The learned C1T(A) has consequently erred both in law and on the facts of the case in confirming AO's stand that the appellant was required to withhold tax while making the aforesaid remittance.
5. The learned CIT(A) has accordingly erred both in law and on the facts of the case in confirming the action of AO in treating the Appellant as assessee-in-default u/s 201(1) of the Act for non-deduction of tax at source u/s 195 of the Act.”
3. The solitary issue in the grounds of appeal filed by the assessee against the decision of ld. CIT(A) in confirming the assessing officer’s act on holding that the assessee is required to pay of Rs. 2,32,319/- being aggregate on sum deductible u/s. 195 r.w.s. 201(1) along with interest u/s. 201(1A) of the Act.
The fact in brief is that the case of the assessee was selected for verification of foreign remittance made by the assessee during the F.Y. 2015-16 pertaining to foreign remittance of Rs. 56,70,000/- towards demurrage charges paid by the assessee to the non-resident Wilmar Trading Pvt. Ltd., Singapore. The AO was of the view that the aforesaid payment made by the assessee to non-resident was liable for tax under the provision of section 195 of the Act. The assessee had explained that the payment of Rs. 56,70,000/- was made to Wilmar Trading Pvt. Ltd and submitted copy of invoice received from Wilmar Trading Pvt. Ltd, copy of declaration regarding permanent establishment given by the Wilmar Trading Pvt. Ltd and information on form no. 15CA/15CB. The assessee has stated that provision of section 201(1) and section 201(1A) r.w.s. 195 of the Act are not applicable in respect of payment of demurrage charges to Wilmar Trading Pvt. Ltd as the same was the reimbursement of expenses to the supplier of the goods. The assessee has also placed reliance on the various judicial pronouncements elaborated in the order of the AO at page no. 3 and 4 of the assessment order. The Page No 3 Gokul Refoils & Solvent Ltd. vs. Dy. CIT, International Taxation assessee has also submitted that vide circular no. 723 dated 19th Sep, 1995, CBDT has specifically clarified that provision of section 195 are not applicable to payment made by resident to non-resident of shipping line or any other person and the provisions of section 194C and 195 relating to tax deduction at source are not applicable. The AO has not agreed with the submission of the assessee stating that assessee has not produced the supporting documents indicating that the payment has been offered to tax u/s. 172 of the Act by the shipping company, therefore, the assessee was treated to be in default for non-deduction of TDS u/s. 195 of the Act on the said payment.
Aggrieved assessee has filed appeal before the ld. CIT(A)(A). The ld. CIT(A) has dismissed the appeal of the assessee holding that the assessee was required to deduct tax as per provisions of section 195 of the Act, therefore, the AO was justified in treating the assessee as assessee in default u/s. 201 of the Act.
During the course of appellate proceedings, the ld. counsel has submitted paper book comprising copies of documents and detailed information furnished before the lower authorities. The ld. counsel has contended that as long as the ship is owned or chartered by a non-resident, provisions of section 172 will be applicable and hence provisions of section 195 of the Act cannot be invoked. The assessee has made reimbursement of demurrage charges to Wilmar Trading Pvt. Ltd ultimate beneficiary of such demurrage charges. The ld. counsel has also placed reliance on the decision of Deepak Fertilizer and Petro-Chemical Ltd. (2019) 112 taxman.com 315 (Mumbai Trib). The ld. counsel has placed reliance on the decision of CIT vs. VS Dempo and Company Pvt. 381 ITR 303 (Bom) and also of the decision of Ahmedabad Tribunal in the case of Steelco Gujarat Ltd. vs. ACIT (2018) 92 taxman.com 27. The ld. counsel has further submitted that the payment was reimbursement of demurrage charges on which no tax is required to Page No 4 Gokul Refoils & Solvent Ltd. vs. Dy. CIT, International Taxation be deducted and placed reliance on the decision of Hon’ble Gujarat High Court in the case of CIT Vs. Gujarat Narmada Valley Fertilizer Company Ltd. Tax Appeal No. 315 of 2013. On the other hand, Ld. D.R. has supported the order of lower authorities.
Heard both the sides and perused the material on record. The demurrage charge was made to the Wilmar Trading Pvt. Ltd as reimbursement of the expenses made by it on behalf of the assessee to shipping company. The assessee has placed reliance on the CBDT Circular No. 723 dated 19th Sep, 1995 and submitted that there was no obligation upon the assessee to deduct taxes at source u/s. 195 in respect of demurrage charges paid to the non-resident shipping company as such income was liable to be brought under tax u/s. 172 of the Act. On perusal of the material on record, we find that during the year under consideration, the assessee has made reimbursement of Rs. 56,70,000/- to Wilmar Trading Pvt. Ltd in respect of demurrage charges paid to shipping company on behalf of the assessee. During the course of assessment, the assessee has submitted all the documentary evidences in relation to the aforesaid reimbursement expenses i.e. demurrage contract, letter to bank for remittance to Wilmar Trading Pvt. Ltd, debit note, amount of remittance, debit note issued by the Wilmar Trading Pvt. Ltd., Form no. 15CA, Form No. 15CB, bank statement voucher, detail of remittance, Form A2 under FEMA and certificate from Wilmar Trading Pvt. Ltd. that it had no permanent establishment in India. We have also gone through Circular No. 723 dated 19th Sep, 1995 of the CBDT wherein it is categorically clarified that if payments are made to various shipping companies who are non- resident or to the agents of non-resident shipping companies then provision of section 194C and 195 are not applicable which are covered by section 172 of the Act. We have also gone through the judicial pronouncements of Mumbai ITAT in the case of Deepak Fertilizer and Petro-Chemical Corporation Ltd. Vs. Pr. CIT(A)
Page No 5 Gokul Refoils & Solvent Ltd. vs. Dy. CIT, International Taxation (Mumbai) (2019) 112 taxman.com 315 wherein it is held that there is no obligation cast upon assessee to deduct tax at source u/s. 195 in respect of demurrage charges paid to a non-resident shipping company as such income was liable to be brought to tax u/s. 44B and section 172 of the Act. Similarly, ITAT Ahmedabad in the case of Steelco Gujarat Ltd. vs. ACIT, Baroda (2018) 92 taxman.com 27 has held that as long as ship in respect of which freight payments are made is owned or chartered by non-resident or entity which is where provision of section 172 are applicable, provision of section 195 or 194C cannot be invoked. In the light of the above facts, material and judicial findings, we consider that provision of section 195 are not applicable to the reimbursement of demurrage charges paid to the non-resident shipping company on behalf of the assessee by Wilmar Trading Pvt. Ltd. Further, it is clearly clarified by the CBDT vide circular no. 723 dated 19th Sep, 1995 that as long as the ship in respect of which freight payment is made is owned or chartered by non-resident the provision of section 172 are applicable and the provision of section 195 or 194C cannot be involved. In view of the facts, findings, and discussion, we are not inclined with the decision of the ld. CIT(A) as provision of section 195 of withholding of tax on freight payment to non-resident shipping companies is not applicable as the same are covered by section 172 of the ACT. Therefore, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 11-09-2020