Clarification regarding treatment of tax paid under section 172(3)/(4) by a non-resident engaged in shipping business

1. The Board had earlier issued Circular No. 730 regarding treatment of tax paid under section 172(3) by a non-resident engaged in the shipping business. Under the provisions of section 172, every time a ship belonging to or chartered by a non-resident makes a voyage from a port in India, carrying passengers, livestock, mail or goods shipped at a port in India, 7.5 per cent of the amount paid or payable on account of the carriage of the passengers etc. is deemed as the income and tax is levied on such income at a rate applicable to a foreign company. The assessment and the payment is to be made before the ship is granted the port clearance. The exception is that, in suitable cases the ship may be allowed to leave provided satisfactory arrangements are made to ensure that the return of income if filed and payment of tax is made within 30 days of the departure of the ship.

2. Under the provisions of section 172(7), the non-resident owner or charterer is allowed an option to be assessed on his total income of the previous year in accordance with other provisions of the Act. When such option is exercised and an assessment is made accurately, the tax already paid under the provisions of section 172(4) by the non-resident owner or charterer would be treated as tax paid in advance for that assessment year before determining the amount of tax finally due.

3. The question that arose for consideration of the Board at the time of issue of Circular No. 730 was that when a regular assess­ment is made under section 143(3), read with the provisions of section 172(7), whether such an assessee would liable to levy of interest under sections 234B and 234C or not. On the other hand, in case of a refund, the question of entitlement of interest under section 244A would also rise. The Board, vide Circular No. 730, dated 14-12-1995 clarified that the assessee, who exercises his option under section 172(7) to get his total income assessed in accordance with the other provisions of the Act, is neither liable to pay interest under sections 234B and 234C, nor entitled to receive interest under section 244A of the Income-tax Act, 1961.

4. This issue has subsequently been discussed and decided by the Supreme Court in the case of A.S. Glittre D/5 I/S Garonne vs. CIT [1997] 225 ITR 739. It has been held that the payment of tax under section 172(3)/(4) is at par with advance tax instalments. Hence, in case of a regular assessment under section 172(7) the assessee is entitled to re­fund, as well as interest on such refund.

5. The Circular No. 730 issued by the Central Board of Direct Taxes on this issue is, under the circumstances, no longer legal­ly tenable and is, therefore, withdrawn. It is clarified that in case of a regular assessment under section 172(7), the non-resident assessee is liable to pay interest under sections 234B and 234C and also entitled to receive interest under section 244A of the Income-tax Act, 1961 as the case may be.

Circular : No. 9/2001, dated 9-7-2001.

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