Taxability of Foreign Shipping Business in India : Governed by the provisions of Section 172 and Section 44B of Income Tax Act, 1961.
The provisions relating to taxability of Foreign Shipping Business have been introduced in the Income Tax Act, 1961 to govern and regulate the manner in which Foreign Shipping Businesses will be taxed in India. The reason behind introduction of a separate or special tax provision under the Income Tax law in India is Increase in Import and Export of Goods and Services in India through Foreign Shippers.
The provisions relating to taxability of foreign shipping business will be attracted only if the Income of such foreign shipping business is chargeable to tax in India under Article 8 (UN Model for Tax Convention) of Double taxation avoidance agreements between India and other Countries.
To tax these foreign shipping businesses in India, Section 172 has been introduced in Income Tax Act, 1961. This section overrules the entire Income Tax Act and lays down the tax recovery mechanism for foreign shipping businesses in India. The section covers only those transactions where the amount is paid/payable whether in or outside India for carriage of any livestock, mail, passengers or goods shipped at any port in India. The amount paid/payable shall also include demurrage, handling charges or any other charges of similar nature. The Income under section 172 shall be computed at 7.5% of the amount that is paid/payable whether in or outside India for carriage of any livestock, mail, passengers or goods shipped at any port in India. Tax under this section shall be at the rate as applicable to a Foreign Company plus surcharge/cess if any.
Also, under section 172 of Income Tax Act, 1961, the master of the ship shall furnish a return to the Assessing Officer and pay the amount of tax before its departure from the port. However, if it is not possible for the master of ship to furnish a return of income before departure, the master of the ship has to make necessary arrangements for filing return of income and payment of tax within 30 days of departure of ship.
Since, this section overrules the entire Income Tax Act, No TDS under Chapter XVII-B is required to be deducted on payments made to foreign shipping lines. There could be a case where payment is made to a resident shipping agent of a Non-resident foreign shipping line; here the resident acts on behalf of the non-resident and steps into the shoe of such non –resident, no TDS is required to be deducted under Income Tax Act, 1961.
Further, Section 44B of Income Tax Act, 1961 is also a special provision for computing profits and gains from foreign shipping business in India. Section 44B of Income tax Act, envisage the concept of presumptive taxation of Income for foreign shipping businesses in India. The section covers 2 type of transactions, where:
1. Amount is paid/payable whether in or outside India for the carriage of any livestock, mail, passengers or goods shipped at any port in India.
2. Amount is received or deemed to be received in India for the carriage of any livestock, mail, passengers or goods shipped at any port outside India.
Under Section 44B of Income Tax Act, 1961; Income of a Foreign Shipping Business in India shall be presumed to be 7.5% of the sum of the aggregate of the above 2 transactions and the tax shall be such as applicable to a Non-resident.
The non-resident foreign shipping business can opt to compute Income and pay tax according to any one of the above 2 sections for the amount which is paid/payable whether in or outside India for the carriage of any livestock, mail, passengers or goods shipped at any port in India. However, the assessee opting to pay tax under section 172 can at the end of the relevant assessment year decide to pay tax according under section 44B of Income Tax Act, 1961 on presumptive Income.
The question that arises on such transition from section 172 to section 44B are:
1. Whether the assessee is required to deposit advance tax on such Income?
2. Whether the assessee is liable to pay interest u/s 234B and 234C of Income tax Act on late payment of advance tax and whether the assessee is eligible to Interest on refund u/s 244A of Income Tax Act, 1961?
The answer to the above questions is given below:
1. Whether the assessee is required to deposit advance tax on such Income?
Ans. The honourable supreme court in the case of A.S. Glittre held that where the assessee subsequently opts to pay tax in accordance with other provisions of Income tax act (I.e. other than section 172) the payment of tax made by the assessee u/s 172 shall be deemed to be advance tax deposited by the assessee under the normal provisions of Income Tax Act, 1961.
2. Whether the assessee is liable to pay interest u/s 234B and 234C of Income tax Act on short payment of advance tax and whether the assessee is eligible to Interest on refund u/s 244A of Income Tax Act, 1961?
Ans. The Central Board of Direct taxes issued a circular bearing circular no. 9/2001 dated 09.07.2001 clarifying that Interest u/s 234B and 234C shall not be levied on short payment of advance tax and correspondingly, the assessee shall not be entitled to any Interest u/s 244A of Income Tax Act on the amount of refund.
In view of the aforesaid provisions, it can be seen that taxability of foreign shipping businesses is very clear in India.
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Shipping Income of Non residents is taxable u/s 44B or Section 172 of the I.T.Act. Does this cover Prepaid Import Freight also?