CIT v. Orient (Goa) (P) Ltd.
INCOME TAX ACT, 1961
Business disallowance under section 40(a)(i)- Payment to non-resident company-Demurrage charges without deducting TDS
Assessee-company claimed deduction of certain amount on account of demurrage payable to a non-resident company. AO considered said amount as non-deductible claim in view of section 40(a)(i) as no tax had been deducted on that amount. CIT (A) as well as Tribunal dismissed the appeal of revenue that demurrages debited by assessee in the hands of the recipient were in nature of profits of non-resident from occasional shipping business under section 44B, read with section 172. He also referred to the provision of section 172(8) which had been brought on the statute by the Finance Act, 1997 and the CBDT Circular No. 723, dated 19-9-1995. They was of view that disallowance made by AO under section 40(a)( i) was incorrect. Held:Title of section 172 is Shipping business of non-residents. For bringing a case under Chapter XV-H, one 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. Assessee, being a company incorporated under the provisions of the Companies Act, 1956, could not be said to be non-resident and assessee could not claim deduction under section 172, since profits of non-residents were not to be dealt with. The other aspect is that such profits of non-residents should be from occasional shipping business but it was not the case that assessee had earned some profits from occasional shipping business and was a non-resident. The tax liability of the foreign company which was recipient of demurrages was not being examined. Section 172 did not apply to the facts of this case wherein assessee was an Indian company incorporated under the provisions of the Companies Act, 1956. Tribunal had recorded a perverse observation/finding regarding application of sections 44B and 172. [Para 8]
CIT (A) and the Tribunal had wrongly interpreted the circular dated 19-9-1995 issued by the CBDT. That circular could not be considered in the facts and circumstances of this case, in aid of assessee. AO had passed a legal, proper and reasoned order, holding that the provisions laid down under section 40(a)(i) applied to the case in hand. [Para 10]
There were no pleadings or material brought on record to show that the case was governed by occasional shipping within the meaning of section 172 and said section applied. [Para 11]
The facts of the case were governed by section 40(a)(i). The order passed by the AO was legal, proper and in accordance with the scheme of the Act. Therefore, the appeal deserved to be allowed by quashing and setting aside the orders passed by the CIT(A) and Tribunal. [Para 12]
Income Tax Act, 1961 Section 40(a)(i) read with section 172
Case Law Analysis:V.M. Salgaocar & Bros. Ltd. v. Dy. Controller [1991] 187 ITR 381/ 56 Taxman 309 (Kar.); CBDT v. Chowgule & Co. Ltd. [1991] 192 ITR 40 (Kar.) [Para 7] and Union of India v. Gosalia Shipping (P.) Ltd. [1978] 113 ITR 307 (SC) distinguished.
Decision: In favour of Revenue.