Case Law Details
Brief of the Case
Bombay High Court held that there was no obligation to deduct tax at source in respect of payment made towards demurrage charges in cases where section 172 of the IT Act applies. The Revenue did not dispute in the present case that section 172 applied. Section 172 covers the case of an assessee who is a non-resident and engaged in the business of operation of ships. It further states that a sum equal to 7 % of the aggregate of the amount specified in sub- section (2) of section 44B as deemed to be profits and gains of such business chargeable to tax under the head “Profits and Gains of Business or Profession”. Further there is an explanation which refers to the demurrage, it clarifies that the amount paid or payable or received or deemed to be received, as the case may be, by way of demurrage charges or handling charges or any other amount of similar nature shall for deemed to be the profits and gains of the business, namely, shipping business chargeable to tax under that head. The section 172 is a charging as well as machinery provision in respect of non-resident shipping companies. It provides for determination and collection of tax. Thus, Chapter XVI of the Act in respect of deducting tax at source would not apply in such cases. Consequently, the disallowance of expenditure on account of section 40(a) (i) is not maintainable.
Facts of the Case
On 8th September, 2015, a Division Bench of this Court hearing Income Tax Appeal No. 989 of 2015 and Income Tax Appeal No. 991 of 2015 was unable to agree with the view taken by another Division Bench of this Court in the case of Commissioner of Income-tax vs. Orient (Goa) Private Limited reported in 3 Vol. 325 Income Tax Reporter Pg. 554. It, therefore, came to the conclusion that judicial discipline demands that instead of taking a contrary view it should request that a larger bench be constituted so as to resolve the disagreement. It, therefore, directed the Registry to place the papers and proceedings of the two Appeals before the Hon’ble The Chief Justice so as to obtain suitable directions for placing the following question of law for opinion of a larger bench –
-Whether, while dealing with the allowability of expenditure under section 40(a) (i), the status of a person making the expenditure has to be a non-resident before the provision to section 172 can be invoked?
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