M/s. Poompuhar Shipping Corporation Limited, CHENNAI V. ACIT, CHENNAI

ITA 16/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64587 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 22-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 05-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T N BETGIRI SR
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Recovery proceedings; Double taxation relief

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 16/MDS/2012 (ASSESSMENT YEAR : 2006-07) M/S POOMPUHAR SHIPPING CORPORATION LTD., NO.692, ANNA SALAI, 4 TH FLOOR, NANDANAM, CHENNAI - 600 034. PAN : AAACP4383J (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(4), CHENNAI - 600 034. (RESPONDENT) APPELLANT BY :SHRI R. VIJAYARAGHAVAN, ADVOCATE RESPONDENT BY :SHRI T.N. BETGIRI, SR. AR DATE OF HEARING : 22.11.2012 DATE OF PRONOUNCEMENT : 22.11.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, ITS GRIEVANC E IS THAT THE CIT(APPEALS) UPHELD THE ORDER OF A.O. DISALLOWING C HARTER HIRE CHARGES PAID BY THE ASSESSEE, APPLYING SECTION 40(A )(I) OF INCOME- TAX ACT, 1961 (IN SHORT 'THE ACT'). AS PER THE ASS ESSEE, CHARTER HIRE CHARGES PAID TO FOREIGN SHIPPING COMPANIES WERE NOT ROYALTY AND NON- I.T.A. NO. 16/MDS/12 2 DEDUCTION OF TAX UNDER SECTION 172 OF THE ACT DID N OT ATTRACT RIGOURS OF SECTION 40(A)(I) OF THE ACT. 2. FACTS APROPOS ARE THAT ASSESSEE, A STATE GOVERNM ENT UNDERTAKING, HAD DURING THE RELEVANT PREVIOUS YEAR, EFFECTED PAYMENT OF ` 50,65,96,917/- TOWARDS CHARTER HIRE CHARGES FOR VE SSELS USED FOR MOVING COALS FROM INDIAN PORTS. AS PER THE A.O., A SSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE UNDER SECTION 172 O F THE ACT. FOR FAILURE TO EFFECT SUCH TAX DEDUCTION, A.O. APPLIED SECTION 40(A)(I) AND MADE AN ADDITION OF ` 50,65,96,917/-. 3. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF T HE ASSESSEE WAS THAT ON THE PAYMENTS EFFECTED, SECTION 172 WAS NOT ATTRACTED AT ALL. ACCORDING TO IT, AS PER SECTION 172 OF THE AC T, THE FOREIGN SHIP OWNERS HAD TO SUBMIT THEMSELVES TO TAX AUTHORITIES FOR ASSESSMENT OF TAX AT THE POINT WHEN THE SHIP VISITED A PORT IN IN DIA. SUCH LIABILITY WAS SOLELY ON THE SHIP OWNERS OF THE FOREIGN SHIPS. SECTION 40(A)(I) COULD BE INVOKED ONLY IN A CASE WHERE TAX, WHICH WA S TO BE DEDUCTED AT SOURCE UNDER CHAPTER-XVIIB OF THE ACT, WAS NOT D EDUCTED BY THE ASSESSEE. SECTION 172 DID NOT FALL WITHIN CHAPTER- XVIIB OF THE ACT. HOWEVER, CIT(APPEALS) WAS OF THE OPINION THAT THE M ATTER HAD I.T.A. NO. 16/MDS/12 3 ALREADY BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSE E'S OWN CASE, FOR EARLIER ASSESSMENT YEAR, WHERE IT WAS HELD THAT THE PAYMENTS MADE TO FOREIGN SHIP OWNERS FELL WITHIN THE AMBIT OF RO YALTY AS GIVEN IN EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT. THER EFORE, ACCORDING TO HIM, ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE, AND HAVING NOT DONE SO, RIGOURS OF SECTION 40(A)(I) STOOD ATTRACTE D. IN THIS VIEW OF THE MATTER, HE CONFIRMED THE ORDER OF A.O. 4. NOW BEFORE US, LEARNED A.R., STRONGLY ASSAILING THE ORDERS OF AUTHORITIES BELOW, SUBMITTED THAT ASSESSING OFFICER HAD HELD THE ASSESSEE TO BE IN DEFAULT FOR A REASON THAT TAX, WH ICH WAS PAYABLE BY THE FOREIGN SHIP OWNERS, IN ACCORDANCE WITH SECTION 172 OF THE ACT, WAS NOT DEDUCTED BY THE ASSESSEE WHEN EFFECTING PAY MENTS FOR THE FOREIGN SHIPS HIRED. REITERATING THE CONTENTIONS M ADE BEFORE THE CIT(APPEALS), LEARNED A.R. SUBMITTED THAT SECTION 1 72 DID NOT FALL WITHIN CHAPTER-XVIIB OF THE ACT AND THEREFORE, SECT ION 40(A)(I) COULD NOT BE APPLIED TO THE ASSESSEE. AS PER LEARNED A.R ., CIT(APPEALS)S VIEW THAT CHARTER HIRE CHARGE PAYMENTS CAME WITHIN THE AMBIT OF ROYALTY WAS ALSO MISPLACED. LEARNED A.R. SUBMITT ED THAT THIS ISSUE STOOD ALREADY DECIDED IN FAVOUR OF ASSESSEE BY THE DECISION OF CO- ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN C ASE, FOR I.T.A. NO. 16/MDS/12 4 ASSESSMENT YEARS 2002-03 TO 2004-05 AND 2006-07 (I. T.A. NOS. 145 TO 148/MDS/2012 DATED 29.6.2012). RELYING ON PARA 14 OF THE SAID ORDER, LEARNED A.R. ARGUED THAT THE PAYMENTS EFFECT ED BY THE ASSESSEE TOWARDS HIRE CHARGES OF FOREIGN SHIPS, WER E NOT IN THE NATURE OF ROYALTY. ACCORDING TO HIM, ONCE IT WAS H ELD NOT TO BE IN THE NATURE OF ROYALTY, THERE WAS NO QUESTION OF ASSESSE E BEING REQUIRED TO DEDUCT ANY TAX AT SOURCE. ASSESSING OFFICER HAD FASTENED THE LIABILITY ON THE ASSESSEE BY APPLYING SECTION 172 O F THE ACT. ACCORDING TO LEARNED A.R., SAID SECTION 172 WAS OUT SIDE CHAPTER- XVIIB. IN ANY CASE, ACCORDING TO HIM, TO THE EXTEN T AMOUNT STOOD PAID, THERE COULD BE NO DISALLOWANCE IN VIEW OF THE DECISION OF SPECIAL BENCH IN THE CASE OF MERILYN SHIPPING AND T RANSPORT V. ADDL.CIT (2012) 16 ITR (TRIB.) 1 (SB). 5. PER CONTRA, LEARNED D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. ISSUE REGARDING DEDUCTIBILITY OF TAX AT SOURCE ON P AYMENTS EFFECTED BY THE ASSESSEE TO FOREIGN SHIPS HIRED BY IT FOR OPERA TIONS, HAD COME UP BEFORE THIS TRIBUNAL FOR A DIFFERENT REASON IN THE EARLIER ASSESSMENT I.T.A. NO. 16/MDS/12 5 YEARS 2002-03 TO 2004-05 AND 2006-07, DEPARTMENT HA D TREATED THE ASSESSEE AS A REPRESENTATIVE FOR VARIOUS FOREIGN SHIPPING COMPANIES EMPLOYED BY IT FOR MOVEMENT OF COAL AND S OUGHT RECOVERY OF TAX FROM IT. WHEN THE MATTER CAME UP BEFORE THI S TRIBUNAL, IT WAS HELD BY THE TRIBUNAL AT PARAS 14 AND 15 OF ITS ORDE R, AS UNDER:- 14. WE FIND THAT IN THE INSTANT CASE, THE ASSESSEE WAS USING THE SERVICES OF FOREIGN SHIPPING COMPANIES FOR TRANSPO RTATION OF COAL FROM ONE PORT TO ANOTHER ON HIRE BASIS. THE ASSESS EE WAS PAYING HIRE CHARGES FOR PROVIDING SUCH SERVICES BY THE FOREIGN SHIPPING COMPANIES. IN OUR CONSIDERED OPINION, THE PAYMENT MADE BY T HE ASSESSEE TO THE FOREIGN SHIPPING COMPANY DO NOT PARTAKE THE C HARACTER OF ROYALTY. THE PAYMENT WAS MADE FOR THE USE OF SHIP BY ITS OWNER IN RENDERING SERVICE TO THE ASSESSEE. THEREFORE, TH E PAYMENT MADE IN THE PRESENT CASE WOULD NOT CONSTITUTE ROYALTY F OR THE USE OF INDUSTRIAL OR COMMERCIAL OR SCIENTIFIC EQUIPMENTS . THUS, THE PROVISIONS OF SECTION 9(1)(VI) OF THE ACT ARE NOT ATTRACTED. 15. ALTHOUGH THE ASSESSEE CANNOT BE TREATED AS R EPRESENTATIVE ASSESSEE, UNDER THE PROVISIONS OF SECTION 193 OF THE ACT, HOWEVER, THE ASSESSEE IS LIABLE TO DEDUCT TAX ON T HE PAYMENTS MADE TO FOREIGN SHIPPING COMPANIES UNDER THE PROV ISIONS OF SECTION 195 OF THE ACT. IN THE INSTANT CASE, THE ASSESSEE IS LIABLE TO DEDUCT TAX ON THE HIRE CHARGES PAID TO FOREIGN SHIPPING COMPANIES. THE COUNSEL FOR THE ASSESSEE SUBMITTE D THAT PROCEEDINGS HAS BEEN INITIATED AGAINST THE ASSESS EE UNDER THE PROVISIONS OF SECTION 201 OF THE ACT FOR NON- DEDU CTION OF TAX AT SOURCE. AGAINST WHICH THE ASSESSEE HAS APPROACHED THE HONBLE MADRAS HIGH COURT. THE HONBLE MADRAS HIGH COURT HAS GRANTED STAY IN THE MATTER RELEVANT TO THE ASSESSMENT YEA R 2002-03 TO 2004-05. THE ASSESSEE IS ASSAILING THE ORDER OF THE CIT(A) ON THE GROUND THAT THE ASSESSEE CANNOT BE CONSIDERED AS ASSESSEE I.T.A. NO. 16/MDS/12 6 REPRESENTATIVE UNDER THE PROVISIONS OF SECTION 1 63. AT THE SAME TIME, THE ASSESSEE IS ALSO NOT COMPLYING WITH THE PROVISIONS OF SECTION 195 AGAINST WHICH THE DEPARTMENT HAS ALR EADY INITIATED PROCEEDINGS UNDER THE PROVISIONS OF SECTION 201 O F THE ACT. THE ASSESSEE CANNOT BE ALLOWED TO TAKE BENEFIT OF BOT H THE PROVISIONS OF THE ACT TO GET AWAY FROM THE TAX LIABILITY. THE ASSESSEE CANNOT ESCAPE FROM LIABILITY OF TAXATION BY CHALLENGING THE PROVISIONS OF ACT IN DIFFERENT FORUMS. WE REMIT THE MATTER BACK TO THE ASSESSING OFFICER TO INITIATE PROCEEDINGS AGAINST THE ASSESSEE UNDER ONE OF THE PROVISIONS OF THE ACT IN THE LIG HT OF THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PREMIER TYRES LTD. REPORTED AS 134 ITR 17 AFTER DISPOSAL OF THE MATTER SUBJUDICE BEFORE THE HONBLE MADRAS HIGH C OURT. A READING OF THE ABOVE WOULD SHOW THAT THE TRIBUNAL HAD HELD THE PAYMENTS EFFECTED BY THE ASSESSEE TO BE NOT IN THE NATURE OF ROYALTY. NEVERTHELESS, IT WAS ALSO HELD BY THE TRIBUNAL THAT ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT. 7. IN ASSESSEES APPEALS IN I.T.A. NOS.149 TO 153/M DS/2012, THIS TRIBUNAL, IN ITS ORDER DATED 29 TH JUNE, 2012, HAD ALSO CONSIDERED APPLICATION OF SECTION 172 OF THE ACT. RELEVANT PA RA 12 OF THE SAID ORDER IS REPRODUCED HEREUNDER:- 12. FROM THE PERUSAL OF DOCUMENTS ON RECORD, WE HAV E OBSERVED THAT NOTICE UNDER SECTION 163 OF THE ACT WAS ISSUE D TO THE ASSESSEE BEING THE REPRESENTATIVE ASSESSEE OF THE FOREIGN SHIPPING COMPANIES. THE SPECIAL PROVISIONS WITH REGARD TO TAXATION OF SHIPPING COMPANIES IS UNDER SECTION 172 OF THE ACT. ACCORDING TO WH ICH THE FOLLOWING CONDITIONS HAVE TO BE SATISFIED:- I.T.A. NO. 16/MDS/12 7 I) THE ASSESSEE IS A NON-RESIDENT; II) THE ASSESSEE OWNS A SHIP OR SHIP CHARTERED BY A NON-RESIDENT; III) SHIP CARRIES PASSENGERS , LIVESTOCK, MAIL OR GOODS SHIPPED AT A PORT IN INDIA; & IV) NON-RESIDENT MAY (OR MAY NOT) HAVE AN AGENT/ RE PRESENTATIVE IN INDIA. IF ALL THE ABOVE CONDITIONS ARE SATISFIED 7.5% OF THE AMOUNT PAID OR PAYABLE ON ACCOUNT OF SUCH CARRIAGE TO THE NON- RESIDENT SHALL BE DEEMED TO BE THE INCOME OF THE NON-RESIDENT. THE SAID INCOME SHALL BE TAXABLE IN THE SAME YEAR IN WHICH SUCH PAYMENT IS MADE. IN THE PRESENT CASE, THE ASSESSEE HAS PAID HIRE CHARGES FOR THE SERVICES RENDERED BY THE FOREIGN SHIPPING COM PANIES. THE SAID HIRE CHARGES PAID BY THE ASSESSEE TO FOREIGN SHIPPING COMPANIES IS INCOME IN THE HANDS OF FOREIGN SHIPP ING COMPANIES FOR THE SERVICES RENDERED IN INDIA. THE ASSESSEE HAS NOT PLACED ON RECORD ANY DOCUMENT TO SHOW THAT FOREIGN SHIPPING COMPANIES WERE EXEMPTED BY DTAA FROM PAYMENT OF TAX. AS PER THE PROVISIONS OF SECTION 195 OF THE INCOME TAX ACT, IT WAS THE DUTY OF THE ASSESSEE TO DEDUCT TAX AT SOURCE BEFORE MAKING PA YMENT TO THE FOREIGN SHIPPING COMPANIES/(NON-RESIDENT). NON-CO MPLIANCE OF THE PROVISIONS OF SECTION 195 OF THE ACT RESULTS IN THE INITIATION OF PROCEEDINGS UNDER SECTION 201 OF THE ACT. THUS, T HE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE. 8. THUS, WE ARE OF THE OPINION THAT THE ASSESSEE WA S OBLIGED TO TAX UNDER SECTION 195 ON THE PAYMENTS EFFECTED BY I T WHICH IT HAD FAILED TO DO SO, AND SUCH FAILURE AUTOMATICALLY ATT RACTED DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT. NO INTERFERENCE IS CALLED FOR. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. I.T.A. NO. 16/MDS/12 8 THE ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 22 ND OF NOVEMBER, 2012, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 22 ND NOVEMBER, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-V, CHENNAI-34 (4) CIT, CHENNAI-III, CHENNAI (5) D.R. (6) GUARD FILE