Jurisdictional AO may verify position & take such action as may be warranted in law u/s. 172(7)

IN THE ITAT RAJKOT BENCH

Income-tax Officer (International Taxation)

Versus

Albatross Shipping Ltd.

IT APPEAL NO. 28 (RJT.) OF 2012

CO. NO. 23 (RJT.) OF 2012

[ASSESSMENT YEAR 2010-11]

OCTOBER 19, 2012

ORDER

T. K. Sharma, Judicial Member This appeal by the Revenue is against the order dated 17.10.2011 of CIT(A) for the assessment year 2010-11.

ITA No. 28/Rjt/2012 (By Revenue)

2. The facts in brief are that the Agent M/s Albatross Shipping Limited, Gandhidham filed various Vovage final return u/s 172(3) of the Income tax Act 1961 on various dates from the financial year 2009-2010 for the freight beneficiary of M/s Balaji Shipping Lines, FZCO, UAE without paying freight tax. The AO for the sake of convenience and since the issue involved in the matter passed common order u/s 172(4) of the Act on 29.12.2010 in respect of entire Vovage return filed during the financial year 2009-10. In this order, the AO held that M/s Balaji Shipping Lines, FZCO, UAE having occasional business on port at Mundra and not engaged in regular business of shipping and hence, not eligible for benefit of Article 8 of Indo-UAEl Treaty. Further in this order the AO held that the Principal is not owned or chartered none of the vessel, therefore, the agent/freight beneficiary is not entitled to claim of DTAA benefit for the said chartered vessel for the various reasons discussed in paragraph 7 of the impugned order. To sum up, the AO worked out the income and tax payable thereon as under :

3. On appeal, before the ld. CIT(A), the assessee contended that Principal M/s Balaji Shipping Lines, FZCO, UAE is engaged in regular shipping business and not occasional business. They are filing return of income u/s 139(1) read with section 44B of the Act for the past several years including for the assessment year under consideration. The acknowledgment of copy of return of income for the assessment year 2010-11 was submitted before the AO during section 172 proceedings. It was further claimed that the appellant was assessed to tax u/s 44B of the Act before the Dy.Director of Income-tax, Circle 1(1), Bombay. And therefore it was held that the assessee was liable to claim the benefit of treaty. It was also argued that once the provisions of section 44B are applicable then applicability of section 172 no more survive. This is because the higher amount is subject to tax u/s 44B as it considered total income of the assessee as compared to tax under section 172 which considered only income on a particular port or a shipping. After considering their arguments, the ld. CIT(A), in the impugned order held that the order passed u/s 172(4) is null and void because the assessee is not engaged in occasional business is backed by its acting alternative clause provided under section 172 (7) of the Act, 1961. The relevant portion of the decision of the ld. CIT(A) as contained in paragraph 2.3 of the impugned order is as under:

“2.3 I have perused the submission made by the appellant and am of the opinion that the appellant is in regular shipping business and not in occasional shipping business. I have considered the judgments cited. Once a person claims that it is not engaged in occasional shipping business and wants to go out of the ambit of section 172, the recourse is provided in section 172(7) only and for that it has to opt for filling return u/s 139(1). Since, the appellant has opted for the option to be assessed u/s 172(7) by filing return of income u/s 139(1) even before 172(4) combined order was passed and also combined with the fact that they approached the AO at Mumbai to issue the 100% DTAA tax relief certificate showing their intent to be assessed under the regular provisions of he Act, that the appellant is in regular shipping business and liable to be assessed under other provisions of the Act including 44B, and not u/s 172(4). Thus the order passed u/s 172(4) by the Income Tax Officer is null and void as Assessee’s claim that it is not engaged in occasional shipping business backed by as many as 86 voyages performed from the port itselt in one year and …taking the alternate recourse provided in section 172(7) itself.

Now, coming to ground 2(a).The appellant has submitted that in the impugned order, the ld. ITO has observed that the provisions of section 172 apply only in case of a ship belonging to or chartered by a non-resident Further, the learned IO has held that the vessels on which the appellant had loaded cargo were neither owned nor chartered by the appellant.. It has been contended that on a plain reading of the provisions of section 172(1), it is clear beyond doubt that section 172 applied only in case of a ship belonging to or chartered by a non-resident, Since, according to the learned ITO, the vessels are neither owner nor chartered by BSL, the provisions of section 172(1) cannot apply to BSL on this ground alone.

I have perused through the submission and documents submitted y the appellant. Once the AO says that the appellant is not owner/charter of the vessel, then he could not have taken recourse to section 172 itself as the section applied to owner/charter only. The subsection (1) reads as under :

“172. (1) The provisions of this section shall, notwithstanding anything contained in the other provisions of this Act, apply 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, livestock, mail or goods shipped at a port in India”.

However, this ground is not adjudicated since I have already held in earlier ground that the order passed by the AO u/s 172(4) is null and void and this ground becomes academic. Further, the slot charter not being an charterer requires to be debated, which is not required in this case, in view of the earlier finding.”,

4. Aggrieved with the order of the ld. CIT(A), the Revenue is in appeal before this Tribunal by taking following grounds :

“1.  The ld. CIT(A) has erred in law and on facts in holding that the assessee opted for the option to be assessed u/s 172(4) by filing return of income u/s 139(1) even before the order u/s 172(4) was passed, without appreciating the facts of the case.

 2.  The ld. CIT(A) has erred in law and on facts in holding that the AO is null and void and that the assessee is assessable under section 172(7) of the Act.

 3.  The ld. CIT(A) has erred in law and on facts in decision majority of the grounds considering the facts that the assessee has filed its return u/s 139(1) of the Act, without appreciating the facts of the case in is proper perspective, thereby non-adjudication of grounds.

 4.  The ld. CIT(A) has further erred in law and on facts in holding that the benefit of DTAA between India and UAE is available to the assessee ignoring the fact that the assessee is not engaged is the operation of ships and it has neither owned nor chartered the vessels in which the goods have been transported.

 5.  The ld. CIT(A) has further erred in law and on facts by ignoring the comprehensive DTAA between India and UAE i.e. article 4(1)(b) applicable to the companies incorporated in the UAE and managed and controlled wholly in UAE;

 6.  The ld. CIT(A) has further erred in law and on facts giving credence to the fact that the shareholders and directors are not UAE residents but are Indian national.

 7.  The ld. CIT(A) has further erred in law and on facts by ignoring the comprehensive DTAA between India and UAE in respect of Article 29 of Limitation of benefit. i.e. “an entity which is resident of a contracting state shall not be entitled to the benefit of this agreement if the main purpose of the creation of such entity was to obtain the benefits of this agreement that would not be otherwise available. The cases of legal entities not having bonafide business activities shall be covered by this article.;

 8.  On facts and circumstances of the case the ld. CIT(A) ought to have upheld the order of the AO.

 9.  It is therefore, prayed that the order of the CIT(A) may be cancelled and that of the AO may be restored to the above extent.

10. Any other round that may be urged at the time of hearing”.

5. At the time of hearing before us, on behalf of the Revenue Shri Avinash Kumar, the ld. DR appeared and contended that Principal has not owned or chartered any of the vessel, therefore, Principal had wrongly claimed DTAA benefit for the slot chartered vessels. He accordingly relying on the reasoning given by the AO in the assessment order contended that the assessee through its local agent has wrongly claimed DTAA benefit, therefore, the AO rightly made the assessment u/s 172(4) of the Act and ld. CIT(A) is not justified in holding the same as null and void on the ground M/s Balaji Shipping Lines FZCO, UAE is assessable u/s 172(7) of the Act.

6. In reply, Shri Dharmesh Bafana, the ld. Authorized Representative of the assessee supported the order of the ld. CIT(A). He contended that the Principal of assessee and the freight beneficiary namely M/s Balaji Shipping Lines FZCO, UAE are engaged in the regular shipping business and not in occasional shipping business and therefore, the provisions of section 172 (4) of the Act are inapplicable to them. In this regard, he drew our attention to the finding recorded by the ld. CIT(A) at pages 9 and 10 of the of impugned order (which is reproduced by us hereinabove at pages 3 and 4 of this order) and submitted that the department has placed no material to rebut the findings of the ld. CIT(A) and merely relied on the findings of the Assessing Officer. However, the freight beneficiary of M/s Balaji Shipping Lines FZCO, UAE was regularly engaged in shipping business was apparent from the fact that the Principal is regularly engaged in the business of shipping, as observed by the ld. CIT(A) that the Principal is regularly filing its return of income at Mumbai. In support of this he filed a copy of the acknowledgment of return of income for the assessment year 20010-11 at pages 9 of the assessee’s paper book. Finally the counsel for the assessee submitted that the Income-tax Act does not stipulate multiple assessment against the same assessee, simultaneously u/s 172(4) and also under the normal provisions of Act. Under these circumstances, the ld. Counsel for the assessee submitted that the ld. CIT(A) rightly quashed the order passed by the AO u/s 172(4) of the Act. The ld. Counsel of the assessee also placed a copy of the decision of the Rajkot Bench of the Tribunal ITO (International Taxation) v. CMA CGM Agencies (India) (P.) Ltd. [2012] 26 taxmann.com 121 wherein on identical facts the Tribunal dismissed the appeal of the assessee with certain observations.

7. Having heard both the sides we have carefully gone through the orders of authorities below. Admittedly, the Rajkot Bench of the Tribunal in the case of I.T.O V/s M/s CMA CGM Agencies (India) Pvt. Ltd. (supra) on identical facts relied on by the ld. counsel of the assessee, quashed the order passed u/s 172(4) of the Act with the observation that the jurisdictional AO may 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 various voyages does not escape assessment as per the normal provisions of the I-T Act. The facts of the assessee’s case are identical to that of the case relied on by the assessee. The Principal M/s Balaji Shipping Lines FZCO, UAE has filed return of income for the assessment year 2010-11 with Dy. Director of Income Tax (International Taxation) Circle 1(1), Mumbai on 15.12.2010. The said case has already been under scrutiny of the regular assessing officer of M/s Balaji Shipping Lines FZCO, UAE. This clearly indicates that M/s Balaji Shipping Lines FZCO, UAE has accepted the liability to be dealt with the provisions of section 172(7) of the Act. 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 86 voyages does not escape assessment as per normal provisions of the Act.

8. In view of the foregoing discussion, the appeal of the Revenue is dismissed subject to the observations made above.

CO No.23/Rjt/2012 (By assessee)

9. Ground taken by the assessee in the cross-objection are as under :

“On facts and in the circumstances of the case, the ld. CIT(A) was justified in holding that he assessee is in business of regular shipping and hence not Covered by the provisions o section 172 land therefore, rightly held that the assessment order passed by the AO under section 172(4) is null and void”

10. Since we have dismissed the appeal of the revenue and the cross-objection filed by the assessee is in support of the ld. CIT(A)’s order, the cross-objection of the assessee becomes infructuous and we dismiss it as infructuous.

11. In the result, the appeal of the Revenue as well as the cross-objection filed by the assessee are dismissed.