THE COMMISSIONER OF INCOME TAX vs. M/S. ORIENT (GOA) PVT. LTD

J U D G M E N T : (Per S.B. DESHMUKH, J.)

2 (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 Section 40(a)(i) of the IT Act, in view of the circular No.723 dated 19.9.95, issued by the CBDT ? (C) 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/- payable to Foreign Shipping Company on which tax has not been deducted, in view of the provisions of Section 172(8) introduced by the Finance Act, 1997 with retrospective effect from 1.4.1976 ? (D) Whether the circular issued by the CBDT dated 19.9.95 has any relevance in applying provisions of section 40(a)(i) for the purpose of computation of income ?

3 (hereinafter referred to as the “Act 1961” for short). It is not in dispute that the assessee had filed its return of income tax on 1.12.1997. Taxable income was declared as Rs.2,10,31,738/-. This declaration was after claiming deduction of Rs.2,18,99,636/- on account of Section 80 HHC. The return submitted by the assessee was processed under Section 143(1)(a) on December 16, 1997. The assessment under Section 143(3) was completed on March 16, 2000. Addition of Rs.4,50,528/- on account of foreign tour expenses of the partners being personal expenses of the partners of the assessee company was made. A notice under Section 148 was issued by the Revenue to the assessee on January 19, 2001. Learned Deputy Commissioner of Income-tax, Circle -1, Panaji passed an assessment order Annexure “A” (page 13). The order passed by the Deputy Commissioner of Income-tax, Circle -1 Panaji (Annexure A) was challenged by filing ITA No.73/PNJ/02-03 before the Commissioner of Income-tax (Appeals), Panaji, Goa. Before the learned Commissioner of Income-Tax (Appeals), ground regarding disallowance of foreign tour expenses of Rs.4,50,528/- was not pressed at the time of hearing of the appeal. This appeal has been decided by the learned Commissioner of Income-tax (Appeals) by an order passed on August 28, 2002. The appellate authority, recorded a finding that 4 disallowance made by the Assessing Officer under Section 40(a)(i) is incorrect. The disallowance was directed to be deleted. In substance, on this ground, the appeal succeeded before the learned Commissioner of Income-tax (Appeals). This order in favour of the assessee had been challenged by the present appellant-revenue by filing ITA No.231/PNJ/2002. This appeal was heard by the learned appellate Tribunal and dismissed by the learned Vice President of the Income Tax Appellate Tribunal, Panaji Bench by Order dated 2.12.2004 (Annexure “D”). It is this order of the appellate Tribunal which is challenged in this appeal on behalf of the Revenue.

5 for the appellant took us to Section 172 of the Act 1961. He submitted that Section 172 of the Act 1961 starts with non obstante clause. It has overriding effect to all other provisions of the Act. He submitted that Section 172 is a complete code in itself. According to him, present is a case of occasional shipping. He also emphasized the circular issued by the Central Board of Direct Taxes (CBDT), (Annexure “C” to the petition). This Circular bears No. 723 and dated 19.9.1995. He supports the Judgment of the learned Tribunal, impugned in this appeal. He also relied on some judicial pronouncements, to which we shall make reference at appropriate stage.

6 on which no tax had been deducted, should not be considered as non- deductible claim and should not be added back. In substance explanation was sought from the assessee as to why amount of Rs.1,08,53,980/-, the amount on which no tax has been deducted, should not be considered as non-deductible claim and should not been added back. In fact the assessee had factually admitted before the Assessing Officer that tax was not deducted on the amount of demurrage in view of Section 40(a)(i) of the Act 1961. The contention was raised that the assessee be allowed such deduction as and when payment was made. The learned Assessing Officer records his agreement in his order that deduction would be admissible on the basis of actual payment of tax on the above demurrage. The Assessing Officer, however, observed that the non-addition, in this respect, amounts to incorrect claim and filing inaccurate particulars of income, and therefore, directed penalty proceedings under Section 271(1)(c) of the Act 1961. 5. Our attention was drawn to the order passed by the learned Commissioner of Income-tax (Appeals) dated August 28, 2002. The issue as regards deduction on account of demurrage, disallowed by the 7 Assessing Officer, was in question before the learned Commissioner. There the learned Commissioner of Income-tax (Appeals) observed that the demurrages debited by the appellant therein (assessee), in the hands of recipient, are in the nature of profits of non-resident from the occasional shipping business under Section 44B, read with Section 172 of the Act 1961. There the learned Commissioner has also referred to sub-section (8) of Section 172. The amended provision has been (Kar). It is seen from the Judgment that the petitioners were mine- Division Bench observed that “The question for consideration is whether demurrage payable to a non-resident owner or charterer of a ship for the delay in loading the ore sold to the foreigner is liable to be taxed under the provisions of the Income-tax Act.” We have seen the facts obtaining in that case. In our view, the facts are distinguishable. The ratio of this Judgment also does not help the present assessee i.e. the respondent in this appeal. We have noticed the various dates in the cited judgment. We have also considered the definition of word “demurrage” to which our attention was invited by learned Senior Advocate Shri Usgaonkar. Learned Senior Advocate also invited our attention to dictionary meaning of the word “demurrage” (Black's Law Dictionary).

13 and 195 of the Act 1961. Advocate on behalf of the Revenue points out from para 4 of the Circular and submits that Section 172 operates in the area of computation of profits from shipping business of non-residents 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 vs. 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 Commissioner of Income-tax (Appeals) and the learned appellate Ltd., had acted as the shipping agent of “Aluminium Company of Canada Limited” which was a non-resident company. That non- resident company had chartered a ship “M.V. Sparto” belonging to a non-resident company called Sparto Compania Naviera of Panama. The said ship called at the port of Betul, Goa on March 1, 1970. On March 20, 1970, the ship had left for Canada. The ship was allowed to leave port of Betul on the basis of guarantee bond, executed by the respondent in favour of the President of India. On April 15, 1970, the First Income-tax Officer, Margao, Goa issued a Demand Notice to the respondent Gosalia Shipping P. Ltd. for payment of Rs.51,000/- and odd amount, by way of income tax. We have noticed all these facts only to say that in the case on hand, there are no pleadings or material

15 brought on record to show that the case is governed by occasional shipping within the meaning of Section 172 of the Act, 1961 and said section applies.

U. D. SALVI, J. ssm.