Brief of the case:
The Hon’ble Bombay HC in the case of CIT vs. Dempo and Co. P. Ltd that when the non- resident payee is assessable under special provisions contained in Sec 172 , then the payer cannot be made responsible for deducting tax at source on the payments made to non-resident. Therefore, disallowance of expenditure cannot be justified. However, the Divisional Bench of High court referred the case to Larger Bench due to disagreement with the view taken by Division Bench in earlier case on identical facts.
Facts of the case:
- The assessee in its return of income had claimed expenditure of Rs.1.8 crores being the demurrage claim paid to a nonresident shipping company. The Assessing Officer disallowed such expenditure for failure to deduct tax at source under Section 195 of the Act.
- The argument of the assessee for non-deducting tax at source was that since the payee is non-resident shipping company the provision of Chapter XVII-B relating to TDS are not applicable as the payee is governed by Sec 172 which is specially for non-resident carrying on shipping business.
- CIT (A) rejected the claim of assessee and held that the income of payee would be computed by Sec 44B and therefore, the TDS provisions are applicable.
- However, Tribunal allowed the claim of assessee by following its earlier decision in the case of DCIT Vs. Orient (Goa) (P) Ltd. rendered on 2 December 2004.Tribunal relied on CBDT Circular N0. 723 and held that Section 172 of the Act is a charging as well as a machinery provision in respect of nonresident shipping companies. It provides for determination and collection of tax. Thus Chapter XVII of the Act in respect of deducting tax at source would not apply in such cases.
Contention of Revenue:
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