Section 172 (of Income Tax Act, 1961) is applicable to non-resident companies
Section 172 (of Income Tax Act, 1961) is applicable to non-resident companies
Assessee company was into mining and export of processed iron ore, and construction business. AO made addition u/s 40(a)(i) (of Income Tax Act, 1961) r/w s 195 on acount of demurrage charges. CIT(A) partly allowed assessee's appeal. On appeal, the Full Bench of Bomaby High Court held that s 172 was applicable to non-resident company and there was no obligation on the resident assessee/Indian company in this case to deduct tax at source.-900001
1 The assessee-respondent was a company engaged in the business of mining and export of processed iron ore as also in construction business. The assessee filed its return of income on 31st December, 1999, declaring taxable income of Rs.6,19,82,540/-. The assessee claimed deduction u/s 80-HHC (of Income Tax Act, 1961) of Rs.12,78,82,552/-.
2 The case was selected for scrutiny and notices u/s. 143(2) (of Income Tax Act, 1961) were issued to the assessee. Assessee, in response, filed details. The assessee declared other income at Rs.9,67,50,252/-. The main item of this is interest income on Bank deposits and others. The basic issue which arises is whether the entire interest income as claimed by the assessee could be said to be business income, to which explanation (baa) to section 80HHC (of Income Tax Act, 1961), is applicable or whether the said interest income is income from other sources. The assessee also claimed income received from 'Lease income', 'income from transfer of vessels', 'Barge freight', 'proceeds from other services' and 'miscellaneous income', as gross receipts received in the course of its business and therefore there is no question of applying Explanation (baa) to it.The assessee also charged the demurrage charges under the head export expenses to profit and loss account on which no tax has been deducted during the year under consideration.
3 The Assessing Officer held that in view of section 40(a)(i) (of Income Tax Act, 1961) r/w section 195 (of Income Tax Act, 1961), the amount paid as demurrage charges are liable for addition under section 40(a) (of Income Tax Act, 1961). On scrutiny, the Assessing Officer passed an assessment order on 26 th March, 2002, and
allowed deductions under section 80HHC (of Income Tax Act, 1961) to the extent of Rs.8,07,35,598/-
4 CIT(A) partly allowed the assessee's appeal.
5 The ITAT directed the Assessing Officer to exclude 90% of the net income eligible for inclusion for the purpose of computing profits of the
business for the purpose of determining 80HHC deductions.
6 On appeal the High Court held as under:
"Therefore, it is the recipient's position and the perspective in which the recipient's income would be taxed will have to be borne in mind. The non-resident shipping company in respect of it's income would be in a position to rely upon section 44B (of Income Tax Act, 1961) and consequently section 172 (of Income Tax Act, 1961). However, we do not see how there is an obligation to deduct tax at source on the resident assessee/Indian company before us. While computing the income of the non-resident Indian / foreign company, assistance can be derived by such non-residents from section 44B (of Income Tax Act, 1961) if they are in shipping business. It would also be in a position to rely upon section 172 (of Income Tax Act, 1961) but the responsibility of the person making payment to a non-resident in sub-section (1) of section 195 (of Income Tax Act, 1961) cannot be SRP 65/79 ITXA989.15.doc avoided in the manner set out in other cases. The scheme as above operates only to cases covered by section 172 (of Income Tax Act, 1961) and none else."
Case Reference-ORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO. 989 OF 2015 The Commissioner of Income Tax, Versus V.S. Dempo & Co. Pvt. Ltd.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
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