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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Ms. Annapurna Gupta & Shri Siddhartha Nautiyal
Interocean Shipping The Deputy (India) Pvt. Ltd. C/O Commissioner of Rashmi Modi & Co., 409, Vs Income Tax, Maker Bhavan No. 3, 21A, (International New Marine Lines Above Taxation), Gandhidham Balwas Restaurant (Respondent) Mumbai-400020 PAN No: AAACI0143F (Appellant) Appellant by : Shri Rashmikant C. Modi, A.R. Respondent by : Shri Nihar Ranjan Samal, Sr.D.R. Date of hearing : 02-03-2022 Date of pronouncement : 01-06-2022 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:-
The present appeal has been filed by the Assessee against the order passed by the Commissioner of Income Tax (Appeals)-13, Ahmedabad, (in short referred to as CIT(A)), dated 01-09-2016, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2015-16.
Page No 2 Interocean Shipping (India) Pvt. Ltd. vs. DCIT
As transpires from the orders of the authorities below, the assessee is in appeal before us against the order of the Ld. CIT(A) confirming the order passed by the A.O. u/s. 172(4) of the Act and the grounds raised
in this regard are as under: On the facts and in the circumstances of the case, the Appellant submits that the Learned Commissioner of Income Tax (Appeals) has erred in not granting the benefit of Article VI regarding shipping income as per DTAA between India and Greece. The Appellant submits that the benefit of DTAA between India and Greece be granted and the benefit of 50% of the tax payable in India to be granted and demand of Rs. 1521348/- be deleted. On the facts and in circumstances of the case the Appellant submits that the Learned Commissioner of Income Tax (Appeals) has erred in stating that the Non Resident company is engaged in occasional shipping and not in the regular shipping and denied the benefit of the DTAA by applying Clause 4 to the Article VI of the DTAA.
3. The following additional grounds were also raised: "On the facts and circumstances of the case, the Appellant submits that the Appellant's assessment be completed u/s 172 (7) of The Income Tax Act, 1961 on the basis of the Annual Return filed for Assessment Year 2015 - 2016 on 02.02.2016 and the Appellant be granted refund due in respect of income from all the three voyages carried out in F. Y. 2014 - 2015 (A. Y. 2015 - 2016) by giving the benefit of 50% of tax relief as per Clause 4 of Article 6 of DTAA between India and Greece."
3.1. Being a legal ground the same was admitted for adjudication as per the decision of the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC).
The facts in brief are that the assessee acts as an agent of the freight beneficiary M/s. Siena Transportation Special Maritime Enterprise of Greece and on account of a voyage undertaken on 17.09.2014 by the vessel M.T. SIENA of the freight beneficiary, a provisional return, as per the provisions of Section 172(3) of the Act, was filed by the assessee computing Page No 3 Interocean Shipping (India) Pvt. Ltd. vs. DCIT the tax payable on account of the freight earned from India and claiming 50% deduction on the same in lieu of the Double Taxation Avoidance Agreement between India and Greece. This exemption was denied by the A.O. in his order passed u/s. 172(4) of the Act holding that this benefit could be availed by the assessee only in final assessment proceedings as per the provisions of Section 172(7) of the Act and not in the provisional assessment framed u/s. 172(4) of the Act. Accordingly the assessee was held liable to pay tax on the freight earned on this voyage without any benefit of exemption as per the Double Taxation Avoidance Agreement with Greece as claimed by the assessee. This order was upheld by the ld. CIT(A).
Before us the contentions of the Ld.counsel for the assessee were with respect to the additional grounds that the assessee had filed its return of income for the impugned year u/s 139(1) of the Act seeking assessment of its income for the entire year and therefore the provisions of Section 172(7) were attracted and the assessee needed to be assessed on its total income for the year as disclosed in the said return filed as per section 172(7) of the Act and this provisional assessment framed u/s. 172(4) of the Act for the solitary voyage undertaken on 17.02.2014 ought to be set aside. In this regard he relied on the decision of the ITAT Rajkot Bench in the case of ITO, (International Taxation) vs. CMA CGM Agencies (India) (P.) Ltd. reported in [2013] 55 SOT 61. Ld. Counsel for the assessee pointed out that this decision was reiterated in the case of M/s. Albatross Shipping Limited by Page No 4 Interocean Shipping (India) Pvt. Ltd. vs. DCIT the ITAT Rajkot bench in dated 19.10.2012. Copy of both the orders was placed before us.
Ld. D.R. on the other hand supported the order of the authorities below.
We have head contentions of both the parties. We have also gone through the order of the ITAT, Rajkot Bench in the case of CMA CGM Agencies (India) (P.) Ltd. (supra) cited before us.
The issue before us relates to the provisions of Section 172 of the Act which pertains to the liability to tax in Special cases relating to the profits of non-resident from occasional shipping business. The provisions of this section, we have noted, were exhaustively dealt with in the case of CMA CGM Agencies (India) (P.) Ltd. by referring and relying on the decision of the Jurisdictional High Court in the case of Arabian Express Ltd. vs. Union of India [1995] 82 taxmann.com 6 (Guj.). The ITAT interpreted this section as providing that the profits made by non-resident from occasional shipping should be taxed by adopting summary method of assessment by holding that 7 ½% of the amount of freight received from India be treated as the income of the non-resident and further providing for the master of the ship to furnish to the A.O. a return of the full amount of freight earned. Thereafter it requires the A.O. to assess the income as referred to Section 172 and determine the tax payable thereon. It was held that procedure of assessment contemplated u/s. 172(2) & (4) was summary in nature, with the A.O. being required to simply assess income at the rate of 7 ½ % of the Page No 5 Interocean Shipping (India) Pvt. Ltd. vs. DCIT freight paid or payable to the owner or charterer of the ship. That this was all as far as the assessment of income from such ship was concerned. Further the provision of sub section (7) of Section 172 were interpreted as conferring the right on the owner or charterer of the ship to claim before the A.O. that assessment be made of its total income in accordance with the provisions of the Act and any taxes paid u/s. 172 be treated as advance taxes. The relevant para of the order of the ITAT so interpreting the provisions at 15 to 17 is as under: 15. Before proceeding further, it is considered useful to refer to the scheme of taxation u/s 172, which falls under Chapter XV of the Income-tax Act 1961. Chapter XV deals with "Liability in Special Cases". Part "H" of Chapter XV contains only one section, i.e., section 172. It deals with "Profits of non-residents from occasional shipping business". It therefore follows that the persons covered by section 172 are only those who are in occasional shipping business and not in the regular shipping business. Those who are in the regular shipping business are clearly outside the scope of section 172. They are covered by section 44B which contains "Special provision for computing profits and gains of shipping business in the case of non-residents". While section 172 seeks to tax profits of non- residents from occasional shipping business, section 44B seeks to tax their profits from regular shipping business. Sub-section (1) section 172 empowers the Assessing Officer to levy and recover tax in the case of any ship belonging to or chartered by a non-resident in a summary manner notwithstanding anything contained in any other provisions of the I-T Act. Sub-section (2) of section 172 contains summary procedure for computing the income of non-residents from such ships @ 7.5% of the amount paid or payable on carriage of passengers, livestock, mail or goods to the owner or charterer of such ships or to any person on his behalf. Sub-section (3) of section 172 requires the master of the ship to prepare and furnish, before the departure of any such ship, to the Assessing Page No 6 Interocean Shipping (India) Pvt. Ltd. vs. DCIT Officer a return of the full amount paid or payable to the owner or charterer or any person on his behalf on carriage of all passengers, livestock, mail or goods shipped at that port since the last arrival of the ship thereat. Sub-section (4) requires the AO to assess income referred to in sub-section (2) and determine the sum payable thereon. The procedure of assessment contemplated by subsections (2) and (4) is summary in nature in that it neither allows the non-residents to claim any deduction including the benefits otherwise admissible under the Double Taxation Avoidance Agreements nor requires the AO to follow any elaborate procedure for making the assessment. The AO has to simply assess the income at the rate of 7.5% of the freight paid or payable to the owner or charterer of the ship or any person on his behalf. And that is the end of the matter as far as assessment of income from such ships is concerned. Sub-section (7) of section 172 confer-s a right on the owner or charterer of a ship to claim before the AO before the expiry of the relevant assessment year that an assessment be made of his total income in accordance with the normal provisions of the I-T Act, and if he so claims, any payment made by him u/s 172 shall be treated as 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 by him or refunded to him, as the case may be.
The scheme of taxation u/s 172 has been explained by the Hon'ble jurisdictional High Court in Arabian Express Line Ltd. of United Kingdom v. Union of India [1995] 82 Taxman 6 (Guj.) as under: " It is to be noted that section 172 of the Income-tax Act occurs in Chapter XV which provides for liability in various special cases. The sub-heading of section 172 is "Profits of non-residents from occasional shipping business". This section provides that the profits made by non-residents from occasional shipping shall be taxed by adopting the summary method of assessment by holding that 7 A1/2 per cent of the amount paid or payable on account of such carriage to the owner Page No 7 Interocean Shipping (India) Pvt. Ltd. vs. DCIT or the charterer is deemed to be income accruing in India to the owner or charterer on account of such carriage. It also provides that before departure of the ship, the master of the ship has to furnish to the Assessing Officer a return of the full amount paid or payable to the owner or charterer on account of the carriage of all passengers shipped at that port since the last arrival of the ship thereat. Sub-section (3) provides that if the master is unable to do so, he has to make satisfactory arrangement for the filing of the return and payment of the tax by any other person on his behalf. Sub-section (6) provides that a port clearance certificate shall not be granted to the ship until the Collector of Customs is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangements have been made for the payment thereof. In our view, the aforesaid procedure of assessing the income of a non-resident Indian because of his occasional activity in shipping business in India would not be applicable in a case where there is a convention between the Government of India and the foreign countries as provided under section 90 of the Income-tax Act. In the case of such agreement, section 90 would have overriding effect."
It is thus quite evident that the summary procedure contemplated by section 172 would not be applicable to (i) assess the profits of non-residents from regular shipping business; (ii) the cases covered by sub-section (7) of section 172, i.e., where the owner or charterer claims that his total income should be assessed in accordance with the normal provisions of the Income-tax Act; and (iii) cases where there is a convention between the Government of India and the foreign countries as provided under section 90 of the Income-tax Act. The summary procedure of assessment contemplated by section 172 cannot be mixed up with a regular assessment especially when option is exercised by the owner or charterer of the ship u/s 172(7). By the same analogy, there cannot be multiple assessments of profits from the same voyages, i.e., one u/s 172(4) on the basis of returns filed u/s 172(3) and the other under the normal provisions of the Income- tax Act on the basis of the return filed u/s 139.
Page No 8 Interocean Shipping (India) Pvt. Ltd. vs. DCIT 9. Taking note of the above, the ITAT thereafter held that where summary assessment had been made u/s. 172(4) but subsequently the assessee had exercised his right to assessment under the normal provisions of the Act as per the provisions of Section 172(7), then the orders passed u/s. 172(4) in summary assessment were to be set aside and a final assessment ought to be made. The relevant para of the ITAT holding so at para 19 and 20 is as under: 19. As stated earlier, the Hon'ble jurisdictional High Court has held in Arabian Express Line Ltd. of United Kingdom (supra) that the procedure contemplated by section 172 for "assessing the income of a non-resident Indian because of his occasional activity in shipping business in India would not be applicable in a case where there is a convention between the Government of India and the foreign countries as provided under section 90 of the Income-tax Act". The reason for such a view is obvious. Section 172(2)7(4) provides for summary assessment @ 7.5% of the freight paid or payable. By the very nature of assessment contemplated by section 172, it is not possible to deal with the cases covered by Double Taxation Avoidance Agreement. In the matters before us, the AO has rejected the claim of the respondent-company that its case falls under DTAA. Such an examination, in our view, cannot be undertaken in the proceedings u/s 172 as the AO has no discretion u/s 172(2)7(4) except to compute the income @ 7.5% of freight paid or payable. It is perhaps for this reason that section 172(7) gives an option to the owners/charterers of ships to seek assessment of their income in accordance with the normal provisions of the Income-tax Act. Once a return is filed by a non-resident u/s 139 claiming the benefit of DTAA, his assessment would need to be completed under the normal provisions of the Income-tax Act.
Apropos Ground No. (ii), it was vehemently contended by the Id. CIT-DR that the jurisdictional Assessing Officer should be directed to verify the position and tax the income of the freight beneficiary (represented by the respondent- company) from the business of handling cargo transportation (including slot chartering business) as per normal provisions of the Act. It is the case of the respondent-company that its income including the income from 40 voyages covered by the impugned order passed by the AO u/s 172(4) should be taxed in accordance with the normal provisions of the Income-tax Act on the basis of the Page No 9 Interocean Shipping (India) Pvt. Ltd. vs. DCIT return filed by it u/s 139 at Mumbai. Perusal of the order passed by the CIT(A) shows that he has taken a view that the case of the respondent falls u/s 172(7) and not u/s 172(4). The respondent-company has also accepted the liability to be dealt with u/s 172(7). The jurisdictional AO may therefore verify the position and take such action as may be warranted in law in terms of section 172(7) to ensure that the income of the assessee from the aforesaid 40 voyages does not escape assessment as per the normal provisions of the I-T Act.
Therefore the position of law which emerges is that where the assessee has exercised his right to be assessed under the normal provisions of the Act as per Section 172(7) by filing his return of income for the entire year then he ought to be assessed on the return of income so filed as per the normal provisions of the Act, taking note of all benefits and exemptions available to the assessee and the summary assessment orders passed u/s. 172(4) on each voyage undertaken earning freight from India, ought to be set aside.
In the facts of the present case the appeal before us is in proceedings relating to summary assessment with the A.O. having passed an order u/s. 172(4) on freight earned by ship owned by the shipping company, of which the assessee is an agent, on a voyage undertaken from India on 17-09- 2014. But the fact remains that for the impugned year, the assessee had filed his return of income declaring income for the entire year as per the provisions of Section 139(1) of the Act. This fact was pointed out by the Ld. Counsel for the assessee to the Ld.CIT(A) as is evident from its submissions reproduced at para 4 of the order and copy of the return of income filed u/s 139(1) has been placed before us at P.B No.1-3.The decision of the ITAT Page No 10 Interocean Shipping (India) Pvt. Ltd. vs. DCIT in the case of CMA CGM Agencies (India) (P.) Ltd. (supra) will therefore squarely apply, as per which the summary assessment order passed u/s. 172(4) needs to be set aside .The A.O. is further directed to take such action as may be warranted in terms of Section 172(7) of the Act.