ACIT 17(1), MUMBAI V. ELVE CORPORATION, MUMBAI

ITA 3564/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1143 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2017
• Appeal Filed By: Department
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 10-06-2015
• Court: TRIBUNAL
• Keywords: Recovery proceedings; Business income; Depreciation; Residential status; Search and seizure; Double taxation relief; Charitable institution; Services rendered outside India; Deemed to accrue or arise in india; Question of law; Non-deduction of tax; Capital expenditure
• Section: 244A; 10AA; 80HHC; 234B; 14A; 260A; 12A; 194C; 12AA; 10B; 27; 148; 37; 28; 90; 139

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAM IT KOCHAR, ACCOUNTANT MEMBER ./ ITA NOS.3564 & 3565 /MUM/2015 / ASSESSMENT YEARS: 2010-11 & 2011-12 ACIT - 17(1), ROOM NO.117, 1 ST FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S ELVE CORPORATION, ELVE CHAMBERS, GREEN STREET, FORT, MUMBAI-400023 PAN NO. AAAFE4847R ( / REVENUE) ( / ASSESSEE) ./ ITA NOS.3887 & 3888 /MUM/2015 / ASSESSMENT YEARS: 2010-11 & 2011-12 M/S ELVE CORPORATION, ELVE CHAMBERS, GREEN STREET, FORT, MUMBAI-400023 / VS. ACIT - 17(1), ROOM NO.117, 1 ST FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 PAN NO. AAAFE4847R ( / ASSESSEE) ( / REVENUE) 2 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION ! ' # $ / DATE OF HEARING : 25/04/2017 # $ / DATE OF ORDER: 25/04/2017 / O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THE ASSESSEE AS WELL AS THE REVENUE IS IN CROSS APP EAL FOR ASSESSMENT YEAR 2010-11 AND 2011-12 AGAINST THE IMPUGNED ORDERS DATED 23/03/2015 OF THE LD. FIRST APPELLATE AUTHORITY, MUMBAI. FIRST, WE SHALL TAKE UP APPEAL FOR ASSESSMENT YEAR 2010-11. IN THE APPEAL OF THE ASSESSEE (ITA NO.3888/MUM/2015), THE FIRST GROUND PERTAINS TO HOLDING THAT FREIGHT OF RS.1,12,80,096/ - PAID TO NON-RESIDENT SHIPPING COMPANIES OR THEIR AGENTS WAS LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 OF THE INCOM E TAX ACT, 1961 (HEREIN AFTER THE ACT), CONSEQUENTLY, LIA BLE FOR DISALLOWANCE U/S 40(A)(I) OF THE ACT AND OUGHT TO H AVE APPRECIATED THAT NO SERVICES WERE RENDERED IN INDIA AND SINCE NO INCOME WAS ACCRUED OR AROSE IN INDIA, THE PAYMENT OF FREIGHT WAS NOT COVERED BY SECTION 195 O F THE ACT, THEREFORE, NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. 2. DURING HEARING, THE LD. COUNSEL FOR THE ASSESSE E, SHRI RUTURAJ H. GURJAR, CLAIMED THAT THIS ISSUE IS COVERED #$ / ASSESSEE BY SH RI RUTURAJ H. GURJAR #$ / REVENUE BY S HRI RAJAT MITTAL - D.R. 3 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HO N'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS V.S . DEMPO & CO. LTD., SESA GOA LTD. VS CIT (2016) 381 ITR 303 (BOM.)(FB), ORDER DATED 05/02/2016. ON THE OTHER HA ND, THE LD. DR, SHRI RAJAT MITTAL, CONTENDED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2008-09 AND 2009-10 (ITA NO.410 8, 6279 AND 6229/MUM/2012), ORDER DATED 20/11/2015. 2.1. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND T HAT IN THE CASE OF ASSESSEE ITSELF, THE TRIBUNAL VIDE AFOR ESAID ORDER DATED 20/11/2015 HELD AS UNDER:- 2. THE ONLY ISSUE ARISING IN THESE APPEALS IS THE MAINTAINABILITY OR OTHERWISE IN LAW OF SECTION 40(A)(I) OF THE ACT ON THE FOLLOWING EXPENDITURE INCURRED/PAYMENTS ALLOWED BY THE ASSESS EE: SR. NO. NATURE OF PAYMENT A.Y. 2008 - 09 A.Y. 2009 - 10 A) FREIGHT RS.3,13,54,353 RS.2,40,09,150/ - B) COMMISSION RS.1,41,00,556/ - RS.1,41,56,894/ - THERE WAS ADMITTEDLY NEITHER DEDUCTION OF TAX AT SO URCE BY THE ASSESSEE, NOR ANY CERTIFICATE TOWARD NON-DEDUCTION OF TAX U/S. 195(2) STOOD OBTAINED BY IT. THOUGH THE LD. CIT(A) APPROVE D THE REVENUES CASE IN PRINCIPLE, I.E., QUA THE APPLICABILITY OF S ECTION 40(A)(I) OF THE ACT TO THE SAID PAYMENTS IN THE FACTS AND CIRCUMSTANCES OF THE CASE, HE ACCEPTED THE ASSESSEES ALTERNATE CONTENTION OF THE SAID PROVISION BEING APPLICABLE ONLY ON THAT PART OF THE EXPENDITU RE INCURRED FOR THE YEAR THAT REMAINED UNPAID AS AT THE YEAR-END. THIS ARGUMENT, THEN, CONSTITUTES THE ASSESSEES ALTERNATE PLEA (VIDE GRO UND 5) FOR A.Y. 2008-09, AND ALSO EXPLAINS THE REVENUES APPEAL FOR A.Y. 2009-10, I.E., TO THE EXTENT OF DISALLOWANCE DELETED ON ACCO UNT OF PAYMENT DURING THE YEAR. THE RESPECTIVE CASES 3. THE ASSESSEES CASE QUA BOTH THE PAYMENTS IS ESS ENTIALLY THE SAME. THE FREIGHT PAYMENT, WHICH IS ON EXPORTS, IS TO THE NON-RESIDENT 4 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION SHIPPING COMPANIES, THROUGH THEIR AGENTS IN INDIA. NO SERVICES ARE RENDERED IN INDIA, NOR DO THE PAYEES HAVE ANY PERMA NENT ESTABLISHMENT (PE) IN INDIA. THE SHIP OWNERS (OR CO MPANIES), IN ANY CASE, PAY THE TAXES DUE ON THEIR INCOME THAT ARISES OR ACCRUES IN INDIA. COMMISSION, AGAIN, IS ALLOWED TO NON-RESIDENTS, WHO UNDERTAKE PROMOTION OF THE ASSESSEES A MANUFACTURER OF ENG INEERING GOODS, PRODUCTS ABROAD, WHEREAT THE AGENTS ARE LOCATED/ RE SIDENT. NO SERVICE IS RENDERED IN INDIA FOR ANY PART OF THE INCOME TO ACCRUE OR ARISE IN INDIA, WHICH IS PAID DIRECTLY TO THE NON-RESIDENT A GENT/S OUTSIDE INDIA. THIS, IN FACT, IS A PRE-REQUISITE FOR THE APPLICATI ON OF SECTION 195, AS CLARIFIED BY THE HONBLE APEX COURT IN G. E. INDIA TECHNOLOGY CENTRE (P.) LTD. VS. CIT [2010] 327 ITR 456 (SC), WITH THE HONBLE COURT PER CIT VS. TOSHOKU LTD. [1980] 125 ITR 525 (SC) HAVING CLEARLY HELD IN THE CONTEXT OF COMMISSION THAT INCOME EARNED BY A N ON-RESIDENT FOR SERVICES RENDERED OUTSIDE INDIA COULD NOT BE DEEMED TO ACCRUE OR ARISE IN INDIA. THE WITHDRAWAL OF ITS CIRCULARS NOS. 23 ( DATED 23.7.1961) AND 786 (DATED 7.2.2000) BY THE CBDT VIDE CIRCULAR NO. 9/2007 DATED 22.10.2009 IS NOT RETROSPECTIVE, EVEN AS HELD IN CI T VS. MODERN INSULATORS LTD. [2014] 369 ITR 138 (RAJ). AS SUCH, THESE CIRCULARS WERE IN FORCE WHEN THE PAYMENTS WERE MADE, AND THE CLARI FICATION PER CIRCULAR 23 THAT NO INCOME SHALL BE CHARGEABLE TO T AX IN INDIA IN SUCH A CASE SHALL PREVAIL. THE REVENUES CASE IS, AGAIN, TWO FOLD. ADMITTEDLY, THE PAYMENTS HAVE BEEN ALLOWED WITHOUT EITHER DEDUCTING TAX AT SOURCE OR OBTAINING A CERTIFICATE FROM THE A.O. AS TO NON-DEDUCTION (OR D EDUCTION OF TAX AT A LOWER RATE), AS REQUIRED U/S. 195(2) OF THE ACT. AS REGARDS FREIGHT CHARGES, THE SAME IS SUBJECT TO TAX IN THE HANDS OF THE SHIPPING COMPANY U/S.172 OF THE ACT, EVEN AS CLARIFIED IN CI T VS. ORIENT (GOA)(P.) LTD. [2010] 325 ITR 554 (BOM). THE HON'BL E JURISDICTIONAL HIGH COURT IN ORIENT (GOA) (P.) LTD.(SUPRA) HAS CLE ARLY HELD THAT DEDUCTION QUA CHARGES PAID TO NON-RESIDENT (SHIPPIN G COMPANIES) WOULD BE GOVERNED BY SECTION 40(A)(I) OF THE ACT WH ERE NO TAX STANDS DEDUCTED THEREON, AND A DISALLOWANCE U/S. 40(A)(I) IS UNDER SUCH CIRCUMSTANCES LEGAL, PROPER AND IN ACCORDANCE WITH THE SCHEME OF THE ACT. THE SAME BEING, THOUGH, IN THE CONTEXT OF DEMU RRAGE CHARGES WOULD BE INCONSEQUENTIAL IN-AS-MUCH AS PER SECTION 172(8) SUCH CHARGES ASSUME THE NATURE OF RECEIPT TOWARD FREIGHT , I.E., ARE TO BE ACCORDINGLY CONSIDERED AS PART OF THE FREIGHT CHARG ES (INCOME) OF THE SHIPPING COMPANY. THE HONBLE COURT CONSIDERED THE CIRCULAR NO. 723 DATED 19.9.1995 ISSUED BY CBDT. AS REGARDS THE COMM ISSION INCOME, THE REVENUE PLACES RELIANCE ON THE DECISION IN THE CASE OF ELKEM TECHNOLOGY VS. DY. CIT [2001] 250 ITR 164 (AP), WHE REIN IT STANDS CLARIFIED THAT THE INCOME TO ACCRUE OR ARISE IN IND IA, IT IS NOT NECESSARY THAT THE SERVICE SHOULD BE RENDERED IN INDIA, I.E., IN THE TERRITORIAL JURISDICTION OF INDIA, AND IT WOULD BE SUFFICIENT I F THE SERVICES ARE UTILIZED IN INDIA. IN FACT, THE NOMENCLATURE COMMISSION IS MISLEADING, AND THE SERVICES QUALIFY AS FEES FOR TECHNICAL SERVICES, AS CLARIFIED IN WALLACE PHARMACEUTICAL (P.) LTD., IN RE [2008] 195 CTR AAR 63. IN THAT CASE, IT WAS HELD THAT IRRESPECTIVE OF THE DESCRIPTION AS COMMISSION, CONSULTANCY FEES PAYABLE TO NON-RESIDENT FOR DEVELO PING BUSINESS WITH FOREIGN CUSTOMERS FALLS WITHIN THE MEANING OF FEE FOR TECHNICAL SERVICES 5 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION AS DEFINED UNDER EXPLANATION 2 TO S. 9(1)(VII). THE BOARD CIRCULARS WOULD NOT APPLY IN VIEW OF THE AMENDMENT BY WAY OF INSERTION OF EXPLANATION BELOW SECTION 9 BY FINANCE ACT, 2009 W. R.E.F. 01.04.1976. THIS SUMS UP THE CASES OF BOTH THE PARTIES, WHO HAV E ALSO RELIED ON CASE LAW IN SUPPORT OF THEIR RESPECTIVE CASES. IN A DDITION IS THE ASSESSEES ALTERNATE PLEA QUA BOTH THE PAYMENTS, I. E., OF SECTION 40(A)(I) AS BEING APPLICABLE ONLY ON AS MUCH OF THE EXPENDITURE FOR THE RELEVANT YEAR (A.Y. 2008-09) AS OUTSTANDS FOR PAYME NT, I.E., IS PAYABLE, AS AT THE END OF THE YEAR, AND TOWARD WH ICH THE ASSESSEE PLACES RELIANCE ON THE DECISION IN ARCADIA SHARE & STOCK BROKERS (P.) LTD. VS. DY. CIT (IN ITA NO. 1871/MUM/2013 DATED 22 .12.2014). 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 WE SHALL TAKE UP BOTH THE SUMS (PAYMENTS) SEPAR ATELY. WITH REGARD TO FREIGHT ALLOWED TO SHIPPING COMPANIES, THE MATTE R, IN OUR VIEW, IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISI ON IN THE CASE OF ORIENT (GOA) (P.) LTD. (SUPRA). THIS WAS IN FACT CO NCEDED TO BY THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUN SEL, BEFORE US. PER THE SAID DECISION, THE HON'BLE JURISDICTIONAL H IGH COURT HAS UNEQUIVOCALLY HELD THAT PAYMENT OF DEMURRAGE CHARGE S, WHICH ASSUME THE SAME NATURE AS OF FREIGHT CHARGES, TO A NON-RES IDENT WITHOUT DEDUCTION OF TAX AT SOURCE, WOULD ATTRACT SECTION 4 0(A)(I) OF THE ACT, I.E., UNLESS CERTIFIED FOR NON-DEDUCTION U/S. 195(2). THE CONTENTION WITH REGARD TO THE APPLICATION OF G. E. INDIA TECHNOLOGY CENTRE (P.) LTD. (SUPRA) WOULD BE OF NO ASSISTANCE IN-AS-MUCH AS IT IS NOBODYS CASE THAT NO PART OF THE FREIGHT CHARGES IS ASSESSABLE A S INCOME IN THE HANDS OF THE SHIPPING COMPANIES. RATHER, THE VERY P LEA OF THE SAME BEING COVERED U/S. 172, AS FOUND FAVOUR WITH THE TR IBUNAL IN ORIENT (GOA) (P.) LTD.(SUPRA), ADMITS OF THE SAME BEING CH ARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. SECTION 172, FALLI NG UNDER CHAPTER XV- H, TITLED LIABILITY IN SPECIAL CASES, HAS BEEN FO UND BY THE HON'BLE JURISDICTIONAL HIGH COURT IN ORIENT (GOA) (P.) LTD. (SUPRA) TO OPERATE IN A FIELD DIFFERENT FROM CHAPTER XVII, I.E., COLLECTIO N AND RECOVERY OF TAX, UNDER WHICH CHAPTER SECTION 195 FALLS. THE ASSESSEE , ACCORDINGLY, FAILS ON ITS GROUNDS 1 & 2 FOR BOTH THE YEARS. 2.2. IT IS NOTED THAT WHILE COMING TO THE AFORESAI D CONCLUSION, THE BENCH CONSIDERED THE DECISION IN TH E CASE OF CIT VS OREIENT (GOA) (P.) LTD.(2010) 325 ITR 554 (BOM.) FROM HON'BLE JURISDICTIONAL HIGH COURT. HOWEVER, TH E HON'BLE JURISDICTIONAL HIGH COURT (FULL BENCH) IN A LATER DECISION, 05/02/2016, IN THE CASE OF CIT VS V.S. DE MPO AND CO. PVT. LTD. AND SESA GOA LTD. VS CIT (2016) 3 81 ITR 6 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION 303 (BOM.)(FB) OVERRULED THE DECISION IN THE CASE O F CIT VS OREINT (GOA)(P.) LTD. (SUPRA) AND RELIED UPON VARIO US OTHER DECISIONS AND HELD AS UNDER:- ON 8TH SEPTEMBER, 2015, A DIVISION BENCH OF THIS CO URT HEARING INCOME TAX APPEAL NO. 989 OF 2015 AND INCOME TAX AP PEAL NO. 991 OF 2015 WAS UNABLE TO AGREE WITH THE VIEW TAKEN BY ANO THER DIVISION BENCH OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. ORIENT (GOA) PRIVATE LIMITED REPORTED IN 3 VOL. 325 INCOME TAX REPORTER PG. 554. IT, THEREFORE, CAME TO THE CONCLU SION THAT JUDICIAL DISCIPLINE DEMANDS THAT INSTEAD OF TAKING A CONTRAR Y VIEW IT SHOULD REQUEST THAT A LARGER BENCH BE CONSTITUTED SO AS TO RESOLVE THE DISAGREEMENT. IT, THEREFORE, DIRECTED THE REGISTRY TO PLACE THE PAPERS AND PROCEEDINGS OF THE TWO APPEALS BEFORE THE HON'B LE THE CHIEF JUSTICE SO AS TO OBTAIN SUITABLE DIRECTIONS FOR PLA CING THE FOLLOWING QUESTION OF LAW FOR OPINION OF A LARGER BENCH. 'Q. WHETHER, WHILE DEALING WITH THE ALLOWABILITY OF EXPENDITURE UNDER SECTION 40(A)(I) OF THE INCOME TAX ACT, 1961, THE S TATUS OF A PERSON MAKING THE EXPENDITURE HAS TO BE A NONRESIDENT BEFO RE THE PROVISION TO SECTION 172 OF THE ACT CAN BE INVOKED ?' 2. THE REGISTRY PLACED THE PAPERS BEFORE THE HON'BLE T HE ACTING CHIEF JUSTICE ON 8TH OCTOBER, 2015, AND ON 9TH OCTOBER, 2 015, THE HON'BLE THE ACTING CHIEF JUSTICE DIRECTED CONSTITUTION OF T HIS LARGER BENCH. ACCORDINGLY, THE QUESTION HAS BEEN PLACED BEFORE US FOR OUR OPINION AND ANSWER. 3. BEFORE THAT QUESTION IS ANSWERED IT WOULD BE NECESS ARY TO REFER TO THE FACTS. A REFERENCE TO THE SAME IS MADE ONLY TO APPRECIATE THE CONTENTIONS OF BOTH SIDES. INCOME TAX APPEAL NO.989 OF 2005 WAS FILED BY COMMISSIONER OF INCOME TAX UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, AGGRIEVED AND DISSATISFIED WITH THE ORDE R OF THE INCOME TAX APPELLATE TRIBUNAL, PANAJI BENCH, DATED 11TH DECEMB ER, 2005, PASSED IN INCOME TAX APPEAL NOS. 240/PN/2004 AND 273/PN/20 04. THE ASSESSMENT YEAR IS 1999-2000. 4. THE ASSESSEE-RESPONDENT BEFORE THIS COURT IS A COMP ANY ENGAGED IN THE BUSINESS OF MINING AND EXPORT OF PROCESSED IRON ORE AS ALSO IN CONSTRUCTION BUSINESS. 5. THE ASSESSEE FILED ITS RETURN OF INCOME ON 31ST DEC EMBER, 1999, DECLARING TAXABLE INCOME OF RS.6,19,82,540/-. THE A SSESSEE CLAIMED DEDUCTION U/S 80-HHC OF RS.12,78,82,552/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S. 143(2) 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 I S INTEREST INCOME ON BANK DEPOSITS AND OTHERS. THE BASIC ISSUE WHICH ARISES IS WHETHER THE ENTIRE INTEREST INCOME AS CLAIMED BY THE ASSESS EE COULD BE SAID TO BE BUSINESS INCOME, TO WHICH EXPLANATION (BAA) TO S ECTION 80HHC, IS APPLICABLE OR WHETHER THE SAID INTEREST INCOME IS I NCOME 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 7 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION RECEIVED IN THE COURSE OF ITS BUSINESS AND THEREFOR E THERE IS NO QUESTION OF APPLYING EXPLANATION (BAA) TO IT. THE A SSESSEE ALSO CHARGED THE DEMURRAGE CHARGES UNDER THE HEAD EXPORT EXPENSE S TO PROFIT AND LOSS ACCOUNT ON WHICH NO TAX HAS BEEN DEDUCTED DURI NG THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER HELD THAT IN V IEW OF SECTION 40(A)(I) R/W SECTION 195, THE AMOUNT PAID AS DEMURR AGE CHARGES ARE LIABLE FOR ADDITION UNDER SECTION 40(A). THE ASSESS EE ALSO CLAIMED MISCELLANEOUS EXPENSES, WHICH HAS BEEN DISALLOWED B Y THE ASSESSING OFFICER. ON SCRUTINY, THE ASSESSING OFFICER PASSED AN ASSESSMENT ORDER ON 26TH MARCH, 2002, AND ALLOWED DEDUCTIONS UNDER S ECTION 80HHC TO THE EXTENT OF RS.8,07,35,598/-. A COPY OF THE ASSES SMENT ORDER DATED 26TH MARCH, 2002, IS ANNEXED AS ANNEXURE-A TO THE A PPEAL PAPER- BOOK. BEING AGGRIEVED BY THE SAID ORDER, THE ASSESS EE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). TH E CIT (A) BY ORDER DATED 2ND AUGUST, 2008, PARTLY ALLOWED THE AS SESSEE'S APPEAL. A COPY OF THE ORDER DATED 2ND AUGUST, 2004, PASSED BY THE CIT (APPEALS) IS ANNEXED AS ANNEXURE-B TO THE APPEAL PA PER-BOOK. BEING AGGRIEVED BY THE CIT(A)'S ORDER DATED 12TH MARCH, 2 002, THE ASSESSEE AS WELL AS THE REVENUE FILED APPEALS BEFORE THE INC OME TAX APPELLATE TRIBUNAL, PANAJI. THE TRIBUNAL, BY AN ORDER DATED 1 1TH DECEMBER, 2006, PARTLY ALLOWED BOTH ASSESSEE'S AS WELL AS THE REVENUE'S APPEAL, DIRECTING THE ASSESSING OFFICER TO EXCLUDE 90% OF T HE NET INCOME ELIGIBLE FOR INCLUSION FOR THE PURPOSE OF COMPUTING PROFITS OF THE BUSINESS FOR THE PURPOSE OF DETERMINING 80HHC DEDUC TIONS. A COPY OF THE ORDER DATED 11TH DECEMBER, 2006, PASSED BY THE INCOME TAX APPELLATE TRIBUNAL IS ANNEXED AS ANNEXURE-C TO THE APPEAL PAPER-BOOK. 6. THAT IS HOW THE REVENUE REQUESTED THIS COURT TO ADM IT THIS APPEAL AS IT RAISES SUBSTANTIAL QUESTIONS OF LAW. THE APPE AL TOGETHER WITH OTHER TAX APPEALS WAS PLACED BEFORE A DIVISION BENCH OF T HIS COURT AND IT CAME TO BE ADMITTED ON THE FOLLOWING SUBSTANTIAL QU ESTIONS OF LAW : (I) WHETHER IN FACTS AND CIRCUMSTANCES OF THE CASE, THE ITAT HAS ERRED IN APPLYING THE PROVISION OF SECTION 172 IN HOLDING THAT SECTION 40(A)(I) IS NOT APPLICABLE, PARTICULARLY WHEN SECTION 172 CO NCERNED WITH LEVY AND RECOVERY OF TAX IN A CASE OF ANY SHIP, AS AGAIN ST SECTION 195 R/W 40(A)(I) OF THE IT ACT, REFERS TO NON-RESIDENT ASSE SSEE AS IN THE PRESENT CASE ? (II) WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ITAT HAS ERRED WHILE REFERRING THE ISSUE TO THE FIL E OF A.O., TO EXCLUDE 90% OF 'NET' INTEREST INCOME EXCESS OF INTEREST REC EIVED OR PAID PROVIDED THERE IS DIRECT NEXUS BETWEEN INTEREST EAR NED AND PAID AFTER ESTABLISHING THE FACT THAT ALL THE INTEREST INCOME EXCEPT THE INTEREST ON INCOME TAX IS FORMING PART OF THE PROFITS OF THE BU SINESS AND NOT INCOME FROM OTHER SOURCES ? (III) WHETHER THE FINDINGS OF THE ITAT WHILE RESTOR ING THE ISSUE OF INTEREST INCOME TO THE FILE OF A.O., TO EXCLUDE 90% OF 'NET' INTEREST INCOME IS VALID IN LAW. ? 8 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION (IV) WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ITAT IS RIGHT IN LAW IN TAKING INTO ACCOUNT THE 'IN TEREST ON BANK DEPOSITS', 'INTEREST ON INTERCORPORATE DEPOSITS', ' INTEREST ON DEBENTURES', AND 'INTEREST FROM SISTER CONCERNS' AND 'OTHER INTE REST' IS FORMING THE PART OF THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'? (V) WHETHER THE FINDINGS OF THE ITAT THAT THE RECEI PTS ON ACCOUNT OF 'PROFESSIONAL SERVICES' AND 'PROCEEDS ELECTRONIC DA TA PROCESSING' ARE NOT INCOME FALLING WITHIN THE EXCLUSIONARY PROVISIONS O F CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC, IS RIGHT IN LAW ? (VI) WHETHER THE FINDINGS OF THE ITAT, THAT 90% OF THE NET INCOME FROM RECEIPTS ON ACCOUNT OF 'STEVEDORING AGENCY BUS INESS' AND 'TRAVEL AGENCY BUSINESS' ARE FALLING WITHIN THE EXCLUSIVE P ROVISION OF CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC, IS RIGHT IN LAW ? (VII) WHETHER THE FINDINGS OF THE ITAT, THAT ONLY 9 0% OF 'NET' INCOME FROM THE 'TRANSFER OF VESSEL' AND 'BARGE FREIGHT' H AS TO BE EXCLUDED FOR THE PURPOSE OF COMPUTING PROFITS OF THE BUSINESS UN DER CLAUSE (BAA) OF EXPLANATION TO SECTION 80HHC, IS RIGHT IN LAW? (VIII) WHETHER THE FINDINGS OF THE ITAT THAT ONLY 9 0% OF THE 'NET' INCOME FROM THE 'LEASE HIRE CHARGES' RECEIVED BY TH E ASSESSEE APART FROM DEPRECIATION HAS TO BE EXCLUDED FOR THE PURPOS E OF COMPUTING PROFITS OF THE BUSINESS UNDER CLAUSE (BAA) OF EXPLA NATION TO SECTION 80HHC, IS RIGHT IN LAW ?' 7. OUT OF THE ABOVE SUBSTANTIAL QUESTIONS, WE ARE CONC ERNED WITH QUESTION NO. I. 8. AFTER ADMISSION, THE PRESENT APPEAL AND THE OTHER A PPEALS CAME TO BE PLACED FOR FINAL HEARING BEFORE A DIVISION BENCH OF THIS COURT AND THE DIVISION BENCH NOTED THE STAND OF THE ASSESSEE IN PARAGRAPH 4 OF ITS ORDER. IN PARAGRAPH 5, THE DIVISION BENCH NOTED THE REFERENCE BY THE TRIBUNAL TO ITS DECISION IN DEPUTY COMMISSIONER OF INCOME TAX V. ORIENT (GOA) AND FOLLOWING IT, THE TRIBUNAL ALLOWED THE ASSESSEE'S APPEAL. THE ORDER PASSED BY THE TRIBUNAL HOLDS THAT SECTION 40(A)(I) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'IT ACT') WOULD APPLY ONLY WHEN THERE IS AN OBLIGATION TO DEDUCT TAX AT SOURCE. REL IANCE WAS PLACED UPON THE CIRCULAR NO.723 ISSUED BY THE CENTRAL BOAR D OF DIRECT TAXES TO SUPPORT THE CONCLUSION THAT THERE WAS NO OBLIGAT ION TO DEDUCT TAX AT SOURCE IN RESPECT OF PAYMENT MADE TOWARDS DEMURRAGE CHARGES IN CASES WHERE SECTION 172 OF THE IT ACT APPLIES. THE REVENUE DID NOT DISPUTE IN THE PRESENT CASE THAT SECTION 172 APPLIE D. THE TRIBUNAL HELD THAT SECTION 172 IS A CHARGING AS WELL AS MACHINERY PROVISION IN RESPECT OF NON-RESIDENT SHIPPING COMPANIES. IT PROVIDES FOR DETERMINATION AND COLLECTION OF TAX. THUS, CHAPTER XVI OF THE ACT IN RESPECT OF DEDUCTING TAX AT SOURCE WOULD NOT APPLY IN SUCH CASES. CONSEQ UENTLY, THE DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF SECTION 4 0(A)(I) OF THE ACT WAS DELETED. 9 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION 9. THE REVENUE PLACED RELIANCE, BEFORE THE DIVISION BE NCH HEARING PRESENT APPEALS, ON THE DECISION OF ORIENT (GOA) BY WHICH THIS COURT REVERSED THE TRIBUNAL'S ORDER IN THAT ASSESSEE'S CA SE. IN OTHER WORDS, THE TRIBUNAL'S VIEW TAKEN IN THE CASE OF DGIT V. OR IENT (GOA) WAS EXPRESSLY REJECTED BY THIS COURT WAS THE SUBMISSION OF THE REVENUE. ON THE OTHER HAND, THE ASSESSEE CONTENDED THAT THIS DECISION REQUIRES RECONSIDERATION. IN DEALING WITH THESE CONTENTIONS, THE DIVISION BENCH IN THE ORDER REFERRING THE QUESTION HELD AS UNDER : '8. THE SUBSTANTIAL QUESTION INTERALIA WHICH AROSE FOR CONSIDERATION OF THIS COURT IN ORIENT (GOA) (P) LTD.(SUPRA) WAS AS U NDER : '(B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION OF THE DEM URRAGE CHARGES OF RS.1,08,53,980/- PAID TO FOREIGN COMPANY, WITHOUT D EDUCTING TAX ON IT, UNDER S. 40(A)(I) OF THE IT ACT, IN VIEW OF THE CIR CULAR NO. 723 DT. 19TH SEPTEMBER 1995 [(1995) 128 CTR (ST) 61], ISSUED BY CBDT?' 9. THE ABOVE QUESTION AROSE FOR CONSIDERATION BY TH IS COURT ON THE FOLLOWING FACTS : (A) M/S. ORIENT (GOA) (P) LTD. (ASSESSEE) HAD FOR A .Y. 1997-98 DECLARED AN INCOME OF RS.2.10 CRORES. IT HAD PAID A N AMOUNT OF RS.1.08 CRORES AS DEMURRAGE CHARGES TO A NON-RESIDE NT SHIPPING COMPANY VIZ. M/S. MITSUI & CO. LTD. HOWEVER AS THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON THE DEMURRAGE CHARGES PAI D, THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE OF DEMURRAGE CHA RGES IN VIEW OF SECTION 40(A)(I) OF THE ACT. (B) IN APPEAL, THE CIT(A) HELD THAT DEMURRAGE CHARG ES HAD BEEN PAID BY ASSESSEE. HOWEVER IN THE HANDS OF RECIPIENT M/S. MITSUI & CO. LTD. IT WAS IN THE NATURE OF PROFITS OF A NON-RESIDENT FROM OCCASIONAL SHIPPING BUSINESS. PLACING RELIANCE UPON THE CBDT CIRCULAR N O.723 AND SECTION 172 OF THE ACT, THE CIT (A) ALLOWED THE APPEAL. (C) THE REVENUE'S APPEAL TO THE TRIBUNAL WAS DISMIS SED. 10. THIS COURT HELD THAT SECTION 172 OF THE ACT IS APPLICABLE ONLY IN RESPECT OF NON-RESIDENT CARRYING ON SHIPPING BUSINE SS WHILE ASSESSEE I.E. ORIENT (GOA) (P) LTD. IS ADMITTEDLY A RESIDENT AND THEREFORE SECTION 172 OF THE ACT CANNOT BE APPLIED. THUS THE EXPENDIT URE OF DEMURRAGE CHARGES CANNOT BE ALLOWED IN THE ABSENCE OF TAX BEI NG DEDUCTED AT SOURCE. THE RELEVANT OBSERVATIONS OF THIS COURT IS FOUND IN PARAGRAPH 8 AS UNDER : '8. SEC. 172 OF THE ACT 1961 IS CAREFULLY CONSIDERE D BY US. CHAPTER XV TITLES AS 'LIABILITY IN SPECIAL CASES'. WE HAVE NO CONCERN WITH SECTIONS, STARTING FROM S. 159, TILL S. 171 FROM THIS CHAPTER XV. SEC. 172 COMES 10 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION UNDER SUB-TITLE 'H.-PROFITS OF NON-RESIDENTS FROM O CCASIONAL SHIPPING BUSINESS'. TITLE OF S. 172 IS 'SHIPPING BUSINESS OF NON-RESIDENTS'. FOR BRINGING A CASE UNDER CHAPTER XV-H OF THE ACT 1961, ONE HAS TO ESTABLISH A CASE OF PROFITS OF NON-RESIDENTS FROM O CCASIONAL SHIPPING BUSINESS. 'NON-RESIDENT' IS DEFINED U/S. 2(30), AS A PERSON WHO IS NOT A 'RESIDENT' AND FOR THE PURPOSE OF SS. 92, 93 AND 168, INCLUDES A PERSON WHO IS NOT ORDINARILY RESIDENT WITHIN THE ME ANING OF CL. (6) OF S. 6. THE RESPONDENT ASSESSEE IS A COMPANY, INCORPORAT ED UNDER THE PROVISIONS OF INDIAN COMPANIES ACT, 1956, IS FAIRLY AN ADMITTED POSITION. THE ASSESSEE CANNOT BE SAID TO BE NON-RES IDENT. WE HAVE ALSO TAKEN NOTICE OF S. 6 I.E. 'RESIDENCE IN INDIA'. IN SHORT, RESPONDENT ASSESSEE CANNOT BE SAID TO BE NON-RESIDENT. THE PRE SENT APPEAL PERTAINS TO THE RESPONDENT ASSESSEE. IN OUR VIEW, I N THE FACTS OF THE PRESENT CASE, THE RESPONDENT ASSESSEE CANNOT LAY FI NGERS ON S. 172, SINCE WE ARE NOT DEALING WITH PROFITS OF NON-RESIDE NTS. THE OTHER ASPECT IS THAT SUCH PROFITS OF NON-RESIDENTS SHOULD BE FRO M OCCASIONAL SHIPPING BUSINESS. IT IS NOT THE CASE THAT THE RESPONDENT AS SESSEE HAS EARNED SOME PROFIT FROM OCCASIONAL SHIPPING AND IS A NON-R ESIDENT. IN OUR VIEW, S. 172 DOES NOT HAVE APPLICATION IN RELATION TO THE RESPONDENT ASSESSEE AND IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THE COMPANY FROM JAPAN VIZ., MITSUI & CO. LTD., JAPAN, RECIPIENT OF DEMURRAGE AMOUNT IS NOT BEFORE US. IN OTHER WORDS, WE ARE NOT EXAMINING THE TAX LIABILITY OF THE FOREIGN COMPANY I.E., MITSUI & CO. LTD., JAPAN. PROVISIONS OF S. 172 ARE TO AP PLY NOTWITHSTANDING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THE A CT. THEREFORE, IN SUCH CASES, THE PROVISIONS OF SS. 194C AND 195 RELA TING TO TDS, ARE NOT APPLICABLE. THE RECOVERY OF TAX IS TO BE REGULATED FOR VOYAGE UNDERTAKEN FROM ANY PORT IN INDIA BY A SHIP, UNDER THE PROVISIONS OF S. 172. IN THIS VIEW, THESE OBSERVATIONS OF THE LEARNE D VICE PRESIDENT OF TRIBUNAL HAVE NO CONCERN WITH THE FACTUAL ASPECT TH AT IT IS A CASE OF OCCASIONAL SHIPPING, PLEADED OR RAISED BY ASSESSEE. THERE IS NO DISPUTE ABOUT INTERPRETATION OF S. 172 OR S. 195. CRUCIAL P OINT IS AS TO HOW S. 172 APPLIES TO THE FACTS OF THE PRESENT CASE WHEREI N THE RESPONDENT ASSESSEE IS AN INDIAN COMPANY, INCORPORATED UNDER T HE PROVISIONS OF INDIAN COMPANIES ACT, 1956. IN OUR VIEW, THE LEARNE D VICE PRESIDENT OF THE TRIBUNAL HAS RECORDED A PERVERSE OBSERVATION/FI NDING IN PARA 3 REGARDING APPLICATION OF SS. 44B AND 172 OF THE ACT 1961.' 11. WE ARE UNABLE TO AGREE WITH THE ABOVE VIEW OF T HIS COURT IN ORIENT (GOA)(P) LTD. (SUPRA). THIS IS FOR THE REASON THAT THE RESPONDENT- ASSESSEE PLACED RELIANCE UPON SECTION 172 OF THE AC T IN RESPECT OF PAYMENTS MADE BY IT TO A NON-RESIDENT SHIPPING COMP ANY BY WAY OF DEMURRAGE CHARGES. THE TAX WHICH IS DEDUCTED AT SOU RCE BY THE ASSESSEE COMPANY IS ON BEHALF OF THE RECIPIENT OF T HE CHARGES. THE ISSUE BEFORE THE COURT WAS WHETHER DEMURRAGE CHARGE S WHICH ARE PAID BY THE RESPONDENT-ASSESSEE TO A NONRESIDENT COMPANY WOULD BE ALLOWED AS AN EXPENDITURE IN THE ABSENCE OF DEDUCTI ON OF TAX AT SOURCE IN VIEW OF SECTION 40(A)(I) OF THE ACT. ALTHOUGH TH E COURT WAS CONCERNED WITH THE ISSUE IN AN APPEAL CONCERNING A RESIDENT COMPANY. THE INTRODUCTION OF SECTION 172 OF THE ACT BY THE A SSESSEE WAS TO DETERMINE WHETHER IN VIEW THEREOF, WAS THERE ANY OB LIGATION TO DEDUCT TAX AT SOURCE BY THE PAYEE-ASSESSEE. SECTION 172 OF THE ACT HAS TO BE EXAMINED THROUGH THE PRISM OF THE NONRESIDENT SHIPP ING COMPANY IN 11 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION RESPECT OF IT'S INCOME. IT IS IN THE ABOVE VIEW THA T SECTION 172 OF THE ACT AND CIRCULAR NO.723 ISSUED BY THE CBDT WAS RELI ED UPON BY THE RESPONDENT-ASSESSEE TO POINT OUT THAT AS SECTION 17 2 OF THE ACT PROVIDES A COMPLETE CODE IN ITSELF FOR LEVY AND REC OVERY OF TAX SHIP WISE AND JOURNEY WISE. THUS THERE IS NO OCCASION TO DEDU CT TAX UNDER CHAPTER XVII OF THE ACT. 12. IT IS A SETTLED POSITION UNDER THE LAW OF PRECE DENCE THAT IT IS NOT OPEN TO US (DIVISION BENCH) TO TAKE A VIEW CONTRARY TO THE VIEW TAKEN BY ANOTHER DIVISION BENCH OF THIS COURT. IN CASE, W E ARE UNABLE TO AGREE WITH THE VIEW OF THE EARLIER DIVISION BENCH A ND IT DOES NOT FALL WITHIN THE EXCLUSIONARY CATEGORIES OF BINDING PRECE DENT BY BEING CONTRARY TO AND/OR IN CONFLICT WITH A DECISION OF T HE APEX COURT OR RENDERED PER-INCURIAM. IN SUCH A CASE IT IS BEST TH AT THE ISSUE IS RESOLVED AT THE HANDS OF A LARGER BENCH OF THIS COU RT. CERTAINTY OF LAW IS AN IMPORTANT INGREDIENT OF RULE OF LAW.' 10. IT IS IN THE ABOVE CIRCUMSTANCES THAT THE QUESTION FALLS FOR OUR ANSWER AND OPINION. 11. AFTER THE CONSTITUTION OF THE LARGER BENCH, THE MA TTER WAS LISTED FOR DIRECTIONS. WITH THE CONSENT OF ALL ADVOCATES, WE F IXED THE HEARING ON 27TH NOVEMBER, 2015. IT IS EXTREMELY UNFORTUNATE TH AT THE ADVOCATE ENGAGED BY THE REVENUE CHOSE TO INFORM THE COURT RE GISTRY JUST A DAY OR TWO BEFORE THE HEARING THAT SHE WOULD NOT BE APP EARING. IN FACT, AN E-MAIL WAS SENT ON 26TH NOVEMBER, 2015 AND PRIOR TH ERETO, THERE WAS A MESSAGE SENT BY I-PHONE REQUESTING FOR RESCHEDULI NG THE HEARING BEFORE THE FULL BENCH. THE LEARNED ADVOCATE INFORME D THE REGISTRY THAT THE DEPARTMENT/REVENUE HAS EXPRESSED ITS DESIRE TO APPOINT THE ADDITIONAL SOLICITOR GENERAL AND, THEREFORE, SHE WO ULD NOT BE APPEARING BEFORE THE BENCH. THREE WEEKS' TIME WAS SOUGHT FOR THAT PURPOSE. 12. IT IS INDEED UNFORTUNATE THAT WHEN THE BENCH IS CO NSTITUTED TO RESOLVE A CONFLICT OF OPINION BETWEEN TWO DIVISION BENCH JUDGMENTS OF THIS COURT AND ANSWER A QUESTION OF LAW THAT SUCH R EQUESTS ARE MADE BY THE REVENUE. SINCE WE HAD DECIDED UPON THIS DATE AND WITH THE CONSENT OF ALL THE PARTIES, IT WAS NOT POSSIBLE TO RESCHEDULE THE HEARING AND, THEREFORE, THIS REQUEST WAS REJECTED. IT IS IN THESE CIRCUMSTANCES THAT WE REQUESTED MR. MISTRI, LEARNED SENIOR COUNSE L APPEARING FOR SOME OF THE ASSESSEES AND DESIRING TO ADDRESS THIS COURT THAT HE MUST ASSIST US IN AN OVERALL MANNER. MEANING THEREBY, TH E PERSPECTIVE OF BOTH SIDES AND ON THE LEGAL PROVISION AND ITS INTER PRETATION OUGHT TO BE PLACED BEFORE US. IN ALL FAIRNESS, MR. MISTRI HAS T AKEN US THROUGH THE SCHEME OF THE ACT AND INVITED OUR ATTENTION TO SOME OF THE JUDGMENTS ON THE POINT. WE ARE THANKFUL TO HIM. 13. THE EMPHASIS OF MR. MISTRI WAS THAT SECTION 172 OF THE IT ACT IS A COMPLETE CODE THAT APPLIES TO THE NON-RESIDENT INDI ANS. INVITING OUR ATTENTION TO SECTION 40 OF THE ACT, MR. MISTRI WOUL D SUBMIT THAT THE ASSESSEE IS NOT LIABLE TO DEDUCT THE TAX AT SOURCE. OUR ATTENTION IS ALSO INVITED TO SECTION 195 OF THE INCOME TAX ACT TO URG E THAT THE STATUS OF THE RECIPIENT IS MOST RELEVANT. OUR ATTENTION WAS A LSO INVITED TO THE NON OBSTANTE CLAUSE AS EMERGING FROM SUB-SECTION (1) OF SECTION 172. MR. MISTRI HAS ALSO TAKEN US THROUGH CHAPTER XVI OF THE IT ACT TO SUBMIT THAT SECTION 195 IS PART OF RECOVERY PROVISIONS. EV EN WITH REGARD TO 12 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION CHAPTER XVI OF THE IT ACT, ITS TITLE, ACCORDING TO MR. MISTRI, MUST BE NOTICED AS IT IS EXTREMELY RELEVANT. THE TITLE IS ' COLLECTION AND RECOVERY OF TAX'. OUR ATTENTION IS INVITED TO SECTIONS 190, 192, 195 AND 199 (1). MR. MISTRI WOULD SUBMIT THAT DEDUCTION OF TAX AT SO URCE WOULD ARISE IN CASES WHERE EMPLOYEES RECEIVE SALARY. TO MEET THE T AX LIABILITY OF THE EMPLOYEE THE DEDUCTIONS OF TAX IS MADE. THAT IS AT SOURCE, MEANING WHILE PAYMENT. INVITING OUR ATTENTION TO SECTIONS 2 02 AND 205 OF THE IT ACT IT IS SUBMITTED THAT SUCH DEDUCTION IS CLEARLY A RECOVERY. IF TAX TO BE DEDUCTED AT SOURCE IS A RECOVERY, THEN, SECTION 172(1) WOULD PREVAIL OVER OTHER PROVISIONS OF THE ACT. MR. MISTRI WOULD SUBMIT THAT THE REVENUE'S STAND, IF ACCEPTED, WOULD RENDER SECTION 172 OTIOSE AND REDUNDANT. THERE IS NO DOUBLE PAYMENT CONTEMPLATED. THE PROVISIONS OF THE ACT, THEREFORE, OUGHT TO BE CONSTRUED IN SUC H A WAY AS NOT RENDERING ANY PART OF IT OTIOSE OR ANY PROVISION ME ANINGLESS. IT IS IN THESE CIRCUMSTANCES THAT MR. MISTRI WOULD SUBMIT TH AT EVEN THE CIRCULARS REFERRED TO IN THE DIVISION BENCH JUDGMEN T THOUGH NOT BINDING ON THE COURT, CAN BE GIVEN EFFECT TO AS THEY BIND T HE REVENUE. IN OTHER WORDS, THE CIRCULAR ISSUED BY THE REVENUE IS BINDIN G UPON IT AND IT CANNOT ARGUE ANYTHING CONTRARY TO THAT. MR. MISTRI' S ATTEMPT IS TO SHOW THAT IF THE INTERPRETATION OF THE REVENUE OFFICIAL HARMONIZES WITH THAT PLACED BEFORE THE COURT, THEN, EVEN THAT CIRCULAR C AN BE REFERRED TO BY THIS COURT. 14. ALL THE COUNSEL HAVE ADOPTED THE ARGUMENTS OF MR. MISTRI. 15. MR. MISTRI HAS THUS POINTED OUT THAT THE REVENUE'S STAND IS THAT THE JUDGMENT RENDERED BY THIS COURT'S GOA BENCH IN ORIE NT'S CASE LAYS DOWN THE CORRECT LAW. IT MUST BE READ IN ITS PROPER PERSPECTIVE AND IN THE BACKDROP OF THE CONTROVERSY BEFORE THIS COURT. 16. FOR PROPERLY APPRECIATING THE CONTENTIONS RAISED B EFORE US, IT WOULD BE NECESSARY TO REFER TO THE INCOME TAX ACT, 1961. THE ARRANGEMENT OF SECTIONS THEREIN COMMENCING FROM AND DIVIDED INT O SEVERAL CHAPTERS WOULD INDICATE THAT CHAPTER II TITLED 'BASIS OF CHA RGE' IS PRECEDED BY THE PRELIMINARY PROVISIONS IN CHAPTER I AND WHICH A LSO CONTAINS SOME DEFINITIONS. FOR THE PURPOSES OF THE ACT AND UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM 'INCOME' IS DEFINED IN AN INCLUSIVE MANNER. SECTION 2(24) CONTAINS THAT DEFINITION AND THE TERM INCLUDES ALL THAT IS ENUMERATED FROM SECTION 2 CLAUSE (24)(I ) TO (XVIII). THE TERM 'RESIDENT' IS DEFINED IN SECTION 2 CLAUSE (42) TO M EAN A PERSON WHO IS RESIDENT IN INDIA WITHIN THE MEANING OF SECTION 6. THE WORD 'TAX' IS DEFINED IN SECTION 2 CLAUSE (43) AND IN RELATION TO THE ASSESSMENT YEAR COMMENCING ON THE FIRST DAY OF APRIL, 1965, AND ANY SUBSEQUENT ASSESSMENT MEANS INCOME TAX CHARGEABLE UNDER THE PR OVISIONS OF THIS ACT, PRIOR TO THE AFORESAID DATE. THE TERM 'TOTAL I NCOME' IS DEFINED IN SECTION 2 CLAUSE (45) TO MEAN THE TOTAL AMOUNT OF I NCOME REFERRED TO IN SECTION 5 COMPUTED IN THE MANNER LAID DOWN IN THIS ACT. 17. CHAPTER II CONTAINS THE BASIS OF CHARGE AND BY SEC TION 4 SUBSECTION (1), IT IS STATED THAT WHERE ANY CENTRAL ACT ENACTS THAT INCOME TAX SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR R ATES, INCOME TAX AT THAT RATE OR THOSE RATES WILL BE CHARGED FOR THAT Y EAR IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS INCLUDING PROVISIONS OF THE LEVY OF ADDITIONAL INCOME TAX IN RESPECT OF THE TOTAL INCOM E OF THE PREVIOUS YEAR OF EVERY PERSON. THE PROVISO THERETO IS NOT RE LEVANT FOR OUR PURPOSE, BUT SUBSECTION (2) OF SECTION 4 STATES THA T IN RESPECT OF 13 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION INCOME CHARGEABLE UNDER SUB-SECTION (1), INCOME TAX SHALL BE DEDUCTED AT THE SOURCE OR PAID IN ADVANCE, WHERE IT IS SO DEDUCTIBLE OR PAYABLE UNDER ANY PROVISION OF THIS ACT. THE SOURCE OF THE TOTAL INCOME IS SET OUT IN SECTION 6 AND WE ARE NOT CONCERNED WI TH THE APPORTIONMENT OF INCOME CONTEMPLATED BY SECTION 5-A . RESIDENTS IN INDIA IS A MATTER DEALT WITH BY SECTION 6 AND THAT READS AS UNDER : '6. FOR THE PURPOSES OF THIS ACT, - (1) AN INDIVIDUAL IS SAID TO BE RESIDENT IN INDIA I N ANY PREVIOUS YEAR, IF HE (A) IS IN INDIA IN THAT YEAR FOR A PERIOD OR PERIOD S AMOUNTING IN ALL TO ONE HUNDRED AND EIGHTY-TWO DAYS OR MORE; OR (B) ** ** ** (C) HAVING WITHIN THE FOUR YEARS PRECEDING THAT YEA R BEEN IN INDIA FOR A PERIOD OR PERIODS AMOUNTING IN ALL TO THREE HUNDRED AND SIXTY FIVE DAYS OR MORE, IS IN INDIA FOR A PERIOD OR PERIODS AMOUNT ING IN ALL TO SIXTY DAYS OR MORE IN THAT YEAR. [EXPLANATION. I]. - IN THE CASE OF AN INDIVIDUAL - (A) BEING A CITIZEN OF INDIA, WHO LEAVES INDIA IN A NY PREVIOUS YEAR AS A MEMBER OF THE CREW OF AN INDIAN SHIP AS DEFINED IN CLAUSE (18) OF SECTION 3 OF THE MERCHANT SHIPPING ACT, 1958 (44 OF 1958), OR FOR THE PURPOSES OF EMPLOYMENT OUTSIDE INDIA, THE PROVISION S OF SUB-CLAUSE (C) SHALL APPLY IN RELATION TO THAT YEAR AS IF FOR THE WORDS 'SIXTY DAYS', OCCURRING THEREIN, THE WORDS 'ONE HUNDRED AND EIGHT Y-TWO DAYS' HAD BEEN SUBSTITUTED. (B) 'BEING A CITIZEN OF INDIA, OR A PERSON OF INDIA N ORIGIN WITHIN THE MEANING OF THE EXPLANATION TO CLAUSE (C) OF SECTION 115C, WHO, BEING OUTSIDE INDIA, COMES ON A VISIT TO INDIA IN ANY PRE VIOUS YEAR, THE PROVISIONS OF SUB-CLAUSE (C) SHALL APPLY IN RELATION TO THAT YEAR AS IF FOR THE WORDS 'SIXTY DAYS', OCCURRING THEREIN, THE WORDS 'ONE HUNDRED AND EIGHT Y-TWO DAYS' HAD BEEN SUBSTITUTED. [EXPLANATION 2.- FOR THE PURPOSES OF THIS CLAUSE, I N THE CASE OF AN INDIVIDUAL BEING A CITIZEN OF INDIA AND A MEMBER OF THE CREW OF A FOREIGN BOUND SHIP LEAVING INDIA, THE PERIOD OR PER IODS OF STAY IN INDIA SHALL, IN RESPECT OF SUCH VOYAGE, BE DETERMINED IN THE MANNER AND SUBJECT TO SUCH CONDITIONS AS MAY BE PRESCRIBED.] 14 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION (2) A HINDU UNDIVIDED FAMILY, FIRM OR OTHER ASSOCIA TION OF PERSONS IS SAID TO BE RESIDENT IN INDIA IN ANY PREVIOUS YEAR I N EVERY CASE EXCEPT WHERE DURING THE YEAR THE CONTROL AND MANAGEMENT OF THE AFFAIR IS SITUATED WHOLLY OUTSIDE INDIA. (3) A COMPANY IS SAID TO BE A RESIDENT IN INDIA IN ANY PREVIOUS YEAR, IF, - (I) IT IS AN INDIAN COMPANY; OR (II) ITS PLACE OF EFFECTIVE MANAGEMENT, IN THAT YEA R, IS IN INDIA. EXPLANATION. - FOR THE PURPOSES OF THIS CLAUSE 'PLA CE OF EFFECTIVE MANAGEMENT' MEANS A PLACE WHERE KEY MANAGEMENTS AND COMMERCIAL DECISIONS THAT ARE NECESSARY FOR THE CONDUCT OF THE BUSINESS OF AN ENTITY AS A WHOLE ARE, IN SUBSTANCE MADE. (4) EVERY OTHER PERSON IS SAID TO BE RESIDENT IN IN DIA IN ANY PREVIOUS YEAR IN EVERY CASE, EXCEPT WHERE DURING THAT YEAR T HE CONTROL AND MANAGEMENT OF HIS AFFAIRS IS SITUATED WHOLLY OUTSID E INDIA. (5) IF A PERSON IS RESIDENT IN INDIA IN A PREVIOUS YEAR RELEVANT TO AN ASSESSMENT YEAR IN RESPECT OF ANY SOURCE OF INCOME, HE SHALL BE DEEMED TO BE RESIDENT IN INDIA IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN RESPECT OF EACH OF HIS OTHER SOU RCES OF INCOME. (6) A PERSON IS SAID TO BE 'NOT ORDINARILY RESIDENT ' IN INDIA IN ANY PREVIOUS YEAR IF SUCH PERSON IS - (A) AN INDIVIDUAL WHO HAS BEEN A NON-RESIDENT IN IN DIA IN NINE OUT OF THE TEN PREVIOUS YEARS PRECEDING THAT YEAR, OR HAS DURING THE SEVEN PREVIOUS YEARS PRECEDING THAT YEAR BEEN IN INDIA FO R A PERIOD OF OR PERIODS AMOUNTING IN ALL TO, SEVEN HUNDRED AND TWEN TY NINE DAYS OR LESS; OR (B) A HINDU UNDIVIDED FAMILY WHOSE MANAGER HAS BEEN A NON-RESIDENT IN INDIA IN NINE OUT OF THE TEN PREVIOUS YEARS PREC EDING THAT YEAR OR HAS DURING THE SEVEN PREVIOUS YEARS PRECEDING THAT YEAR BEEN IN INDIA FOR A PERIOD OF, OR PERIODS AMOUNTING IN ALL TO, SE VEN HUNDRED AND TWENTY-NINE DAYS OR LESS.' 18. A PERUSAL OF THIS SECTION WOULD INDICATE AS TO HOW AN INDIVIDUAL CAN BE SAID TO BE A RESIDENT OF INDIA, A HINDU UNDIVIDE D FAMILY, FIRM OR ASSOCIATION OF PERSONS CAN ALSO BE SAID TO BE A RES IDENT IN INDIA, A COMPANY ALSO CAN BE A RESIDENT OF INDIA AND EQUALLY OTHER PERSONS. THE TERM 'NOT ORDINARILY RESIDENT' IN INDIA IS ALSO CONTEMPLATED BY 15 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION SECTION 6(6). BY SECTION 7, INCOME STIPULATED THERE IN IS DEEMED TO BE RECEIVED IN THE PREVIOUS YEAR. SECTION 8 DEALS WITH DIVIDEND INCOME AND SECTION 9 DEEMS CERTAIN INCOME TO ACCRUE OR ARI SE IN INDIA. EXPLANATION-I WHICH IS AN EXPLANATION FOR CLAUSE (1 ) SUB-CLAUSE (B) STATES THAT IN THE CASE OF A NON-RESIDENT, NO INCOM E SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA TO HIM THROUGH OR FROM OPE RATIONS WHICH ARE CONFINED TO THE PURCHASE OF GOODS IN INDIA FOR THE PURPOSE OF EXPORT. THEN, CASE OF A NON-RESIDENT ENGAGED IN THE BUSINES S OF RUNNING GOODS AGENCY OR PUBLISHING NEWSPAPER IS DEALT WITH AND IN CASE OF A NONRESIDENT BEING A COMPANY WHICH DOES NOT HAVE ANY SHAREHOLDER WHO IS A CITIZEN OF INDIA OR A RESIDENT IN INDIA NO INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA TO SUCH INDIVIDU AL FIRM OR COMPANY THROUGH OR FROM OPERATIONS WHICH ARE CONFINED TO TH E SHOOTING OF ANY CINEMATOGRAPHIC FILM IN INDIA. THE EXPLANATION II F OR THE REMOVAL OF DOUBTS DECLARES THAT 'BUSINESS CONNECTION' SHALL IN CLUDE ANY BUSINESS ACTIVITY CARRIED OUT THROUGH A PERSON WHO, ACTING O N BEHALF OF THE NON- RESIDENT HAS AND HABITUALLY EXERCISES IN INDIA, AN AUTHORITY TO CONCLUDE CONTRACTS ON BEHALF OF THE NON-RESIDENT, UNLESS HIS ACTIVITIES ARE LIMITED TO THE PURCHASE OF GOODS OR MERCHANDISE FOR THE NON -RESIDENT OR HAS NO AUTHORITY AND, THEREFORE, FROM A READING OF THIS SECTION TOGETHER WITH THE EXPLANATIONS, IT IS APPARENT AS TO INCOME WHICH IS DEEMED TO ACCRUE OR ARISE IN INDIA MAY OR MAY NOT INCLUDE SUC H INCOME WHICH IS NOT ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN I NDIA. THEREFORE, VARIOUS CATEGORIES OF NON-RESIDENT INDIANS AND THE INCOME THAT THEY DERIVE OR MAY DERIVE BY CONTROL OR THROUGH SOMEBODY WHO IS A RESIDENT OF INDIA IS, ACCORDINGLY, DEALT WITH. THE OTHER PAR T OF THIS SECTION IS NOT RELEVANT FOR OUR PURPOSE. WE ARE ALSO NOT CONCERNED WITH INSERTION OF SECTION 9A BY THE FINANCE ACT 2015 WITH EFFECT FROM 1ST APRIL, 2016. 19. BY CHAPTER III, INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME ARE DEALT WITH. IN THAT APPEARS SECTION 10 AND THE CLAU SES THEREOF DO NOT INCLUDE THE INCOME SPECIFIED THEREIN IN COMPUTING T HE TOTAL INCOME OF A PREVIOUS YEAR OF ANY PERSON. CLAUSE 4 DEALS WITH TH E CASE OF A NON- RESIDENT AND THE INCOME BY WAY OF INTEREST ON SUCH SECURITIES OR BONDS AS THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN T HE OFFICIAL GAZETTE, SPECIFY IN THIS BEHALF, INCLUDING INCOME BY WAY OF PREMIUM ON THE REDEMPTION OF SUCH BONDS. SECTION 10(4) (4B) DEALS WITH THE INCOME BY WAY OF INTEREST EARNED BY A NON-RESIDENT ON MONE YS STANDING TO HIS CREDIT IN A NON RESIDENT (EXTERNAL) ACCOUNT IN ANY BANK IN INDIA. THEN, WE HAVE SEVERAL CLAUSES IN SECTION 10, BUT WE ARE N OT CONCERNED WITH ALL OF THEM, SAVE AND EXCEPT SECTION 10(6A),(6B), ( 6BB) AND (6C) THEREOF. AFTER THIS SOMEWHAT LONGISH PROVISION, WE HAVE SECTION 10AA WHICH ENACTS SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKING IN FREE TRADE ZONE ETC. BY SECTION 10B, THERE ARE SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED 100% EXPO RT ORIENTED UNDERTAKINGS. SECTION 10B SETS OUT THE MEANING OF C OMPUTER PROGRAMMES IN CERTAIN CASES. SECTION 10C CONTAINS S PECIAL PROVISION IN RESPECT OF CERTAIN INDUSTRIAL UNDERTAKINGS IN NORTH EASTERN REGION. SECTION 11 DEALS WITH INCOME FROM PROPERTY HELD FOR RELIGIOUS OR CHARITABLE PURPOSES. SECTION 12 DEALS WITH INCOME O F TRUST OR INSTITUTIONS FROM CONTRIBUTIONS. BY SECTION 12A CON DITIONS FOR APPLICABILITY OF SECTIONS 11 AND 12 ARE SET OUT. SE CTION 12AA SETS OUT THE PROCEDURE FOR REGISTRATION. SECTION 13 STATES T HAT SECTION 11 WILL NOT APPLY IN CERTAIN CASES. BY SECTION 13A, SPECIAL PROVISION IS MADE RELATING TO INCOMES OF POLITICAL PARTIES. SECTION 1 3B CONTAINS SPECIAL 16 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION PROVISION RELATING TO VOLUNTARY CONTRIBUTIONS RECEI VED BY ELECTORAL TRUST. AFTER ALL THIS COMES CHAPTER IV WHICH IS TITLED AS COMPUTATION OF TOTAL INCOME. THE HEADS OF INCOME CLASSIFIED BY SECTION 1 4 ARE SALARIES, INCOME FROM HOUSE PROPERTY, PROFITS AND GAINS OF BU SINESS OR PROFESSION, CAPITAL GAINS AND INCOME FROM OTHER SOU RCES. BY SECTION 14A EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME IS SET OUT. WE ARE NOT CONCERNED IN THE INST ANT PROCEEDINGS WITH ALL THE HEADS. WE ARE CONCERNED REALLY WITH PR OFITS AND GAINS OF BUSINESS OR PROFESSION. THEREFORE, WE DO NOT MAKE A NY REFERENCE TO SECTIONS 15 TO 17 AND SECTION 22 TO 27 WHICH DEAL W ITH SALARIES AND INCOME FROM HOUSE PROPERTY. 20. AS FAR AS PROFITS AND GAINS OF BUSINESS OR PROFESSI ON ARE CONCERNED BY SECTION 28 THESE ARE SET OUT. THE INCOME THEREIN SHALL BE CHARGEABLE TO INCOME TAX UNDER THIS HEAD AND THE CLAUSE THEREO F WOULD INDICATE AS TO HOW THE SUB-HEADINGS OF COMPENSATION, INCOME DER IVED BY TRADE, PROFESSIONAL OR SIMILAR ASSOCIATION FROM SPECIFIC S ERVICE PERFORMED FOR ITS MEMBERS, PROFITS ON SALE OF A LICENCE GRANTED U NDER THE IMPORTS AND EXPORTS (CONTROL) ORDER, 1955, MADE UNDER THE IMPOR TS AND EXPORTS (CONTROL) ACT, 1947, CASH ASSISTANCE, DRAWBACK OR S OME OTHER FORM IN WHICH ANY DUTY OF CUSTOMS OR EXCISE IS REPAID OR RE PAYABLE. WE HAVE, THEREFORE, SEVERAL SUCH INCOMES WHICH ARE DERIVED B Y DUTY ENTITLEMENT PASS BOOK SCHEME OR OTHERWISE. WE ALSO HAVE SEVERAL INCOMES WHICH ARE GENERATED IN THE FORM OF ANY BENEFIT OR PERQUIS ITE WHETHER CONVERTIBLE INTO MONEY OR NOT ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION, ANY SUM WHETHER RECEIVED OR RECEIVABLE IN CASH OR KIND UNDER AN AGREEMENT FOR NOT CARRYING OUT ANY ACTIVIT Y IN RELATION TO ANY BUSINESS OR NOT SHARING ANY KNOW-HOW, PATENT, COPYR IGHT, TRADEMARK, LICENCE, FRANCHISE ETC. INCOME GENERATED BY WAY OF ANY ARRANGEMENT OR UNDERSTANDING AS ALSO DERIVED BY RENDERING OF ANY S ERVICE RECEIVED UNDER A KEYMAN INSURANCE POLICY ARE ALL PART OF SEC TION 28. THE INCOME REFERRED TO IN SECTION 28 SHALL BE COMPUTED IN ACCO RDANCE WITH THE PROVISIONS CONTAINED IN SECTION 30 TO 43D. THESE PR OVISIONS ENABLE COMPUTATION OF INCOME AFTER DEDUCTING RENT, RATES, TAXES, REPAIRS AND INSURANCE FOR BUILDING REPAIRS AND INSURANCE OF MAC HINERY, PLANT AND FURNITURE, DEPRECIATION, INVESTMENT ALLOWANCE, INVE STMENT DEPOSIT ACCOUNT, INVESTMENT IN NEW PLANT OR MACHINERY, INVE STMENT IN NEW PLANT OR MACHINERY IN NOTIFIED BACKWARD AREAS IN CE RTAIN STATES, DEVELOPMENT REBATE, DEVELOPMENT ALLOWANCE, RESERVES FOR SHIPPING BUSINESS, REHABILITATION ALLOWANCE. THE CONDITIONS FOR DEPRECIATION ALLOWANCE AND DEVELOPMENT REBATE ARE SET OUT IN SEC TION 34 AND BY SECTION 34A, THERE IS A RESTRICTION ON UNABSORBED D EPRECIATION AND UNABSORBED INVESTMENT ALLOWANCE FOR LIMITED PERIOD IN CASE OF CERTAIN DOMESTIC COMPANIES. SECTION 35 DEALS WITH EXPENDITU RE ON SCIENTIFIC RESEARCH, SECTION 35AB DEALS WITH EXPENDITURE ON KN OW-HOW AND SECTION 35ABB DEALS WITH EXPENDITURE FOR OBTAINING LICENCE TO OPERATE TELECOMMUNICATION SERVICES. SECTION 35AC DEALS WITH EXPENDITURE ON ELIGIBLE PROJECTS OR SCHEMES AND SECTION 35AD DEALS WITH DEDUCTION IN RESPECT OF EXPENDITURE ON SPECIFIED BUSINESS. WE HA VE SEVERAL EXPENDITURES AND PROVIDED IN SECTIONS 35CCA, 35CCB, 35CCC AND 35CCD. SECTION 35D DEALS WITH AMORTIZATION OF CERTA IN PRELIMINARY EXPENSES AND AMORTIZATION OF EXPENDITURE IN OTHER C ASES IS DEALT WITH BY SECTION 35DD AND 35DDA. SECTION 35E DEALS WITH D EDUCTION FOR EXPENDITURE ON PROSPECTING ETC. FOR CERTAIN MINERAL S. SECTION 36 DEALS WITH OTHER DEDUCTIONS. SECTION 37 DEALS WITH GENERA L EXPENDITURE AND 17 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SE CTIONS 30 TO 36 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR P ERSONAL EXPENSES OF THE ASSESSEE LAID OUT OR EXPENDED WHOLLY AND EXCLUS IVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION. THAT SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROF ITS OR GAINS OF BUSINESS OR PROFESSION. SECTION 38 DEALS WITH BUILD ING ETC., PARTLY USED FOR BUSINESS ETC., OR NOT EXCLUSIVELY SO USED. SECT ION 39 STANDS OMITTED. THEN COMES SECTION 40 WHICH IS TITLED AMOU NTS NOT DEDUCTIBLE. THIS SECTION READS AS UNDER: '40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SE CTION 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION:,- (A) IN THE CASE OF AN ASSESSEE - (I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISSU ED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), RO YALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER TH IS ACT, WHICH IS PAYABLE,- (A) OUTSIDE INDIA; OR (B) IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID [DURING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEA R BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SEC TION 200] : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR, HAS BEEN DEDUCT ED IN THE PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 20 0, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME O F THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. THE FOLLOWING PROVISO SHALL BE SUBSTITUTED FOR THE EXIST ING PROVISO TO SUB-CLAUSE (I) OF CLAUSE (A) OF SECTION 4 0 BY THE FINANCE (NO. 2) ACT, 2014, W.E.F 1-4-2015 : PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCT ED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139, SUCH SUM SHALL BE ALLOWED AS A DEDUCTI ON IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX H AS BEEN PAID. EXPLANATION.-FOR THE PURPOSES OF THIS SUB-CLAUSE,- 18 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION (A) 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN EXP LANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; (B) 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE SA ME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB SECTION (1) OF SECTION 9; (IA)[ANY INTEREST, COMMISSION OR BROKERAGE, [RENT, ROYALTY,] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICE S PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB -CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK)], ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED O R, AFTER DEDUCTION, [HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 :] [ PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCT ED DURING THE PREVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139, [ THIRTY PER CENT OF] SUCH SUM SHALL B E ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS Y EAR IN WHICH SUCH TAX HAS BEEN PAID :] [ PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIO NS OF CHAPTER XVII-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201 , THEN, FOR THE PURPOSE OF THIS SUB-CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE O F FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO.] EXPLANATION.- FOR THE PURPOSES OF THIS SUB-CLAUSE,- (I) 'COMMISSION OR BROKERAGE' SHALL HAVE THE SAME M EANING AS IN CLAUSE (I) OF THE EXPLANATION TO SECTION 194H; (II) 'FEES FOR TECHNICAL SERVICES' SHALL HAVE THE S AME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUBSECTION (1) OF SECTION 9; (III) 'PROFESSIONAL SERVICES' SHALL HAVE THE SAME M EANING AS IN CLAUSE (A) OF THE EXPLANATION TO SECTION 194J; (IV) 'WORK' SHALL HAVE THE SAME MEANING AS IN EXPLA NATION III TO SECTION 194C; 19 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION [(V) 'RENT' SHALL HAVE THE SAME MEANING AS IN CLAUS E (I) TO THE EXPLANATION TO SECTION 194-I; (VI) 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN EX PLANATION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9;] (IB) ** ** ** [(IC) ANY SUM PAID ON ACCOUNT OF FRINGE BENEFIT TAX UNDER CHAPTER XIIH;] (II) ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX LEV IED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR ASSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SUCH PROFITS OR GAIN S. [EXPLANATION 1. - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF THIS SUB-CLAUSE, ANY SUM PAID O N ACCOUNT OF ANY RATE OR TAX LEVIED INCLUDES AND SHALL BE DEEMED ALW AYS TO HAVE INCLUDED ANY SUM ELIGIBLE FOR RELIEF OF TAX UNDER S ECTION 90 OR, AS THE CASE MAY BE, DEDUCTION FROM THE INDIAN INCOME-TAX P AYABLE UNDER SECTION 91.] [EXPLANATION 2.- FOR THE REMOVAL OF DOUBTS, IT IS H EREBY DECLARED THAT FOR THE PURPOSES OF THIS SUB-CLAUSE, ANY SUM PAID O N ACCOUNT OF ANY RATE OR TAX LEVIED INCLUDES ANY SUM ELIGIBLE FOR RE LIEF OF TAX UNDER SECTION 90A;] (IIA) ANY SUM PAID ON ACCOUNT OF WEALTH-TAX. EXPLANATION.-FOR THE PURPOSES OF THIS SUB-CLAUSE, ' WEALTH-TAX' MEANS WEALTH-TAX CHARGEABLE UNDER THE WEALTH-TAX ACT, 195 7 (27 OF 1957), OR ANY TAX OF A SIMILAR CHARACTER CHARGEABLE UNDER ANY LAW IN FORCE IN ANY COUNTRY OUTSIDE INDIA OR ANY TAX CHARGEABLE UNDER S UCH LAW WITH REFERENCE TO THE VALUE OF THE ASSETS OF, OR THE CAP ITAL EMPLOYED IN, A BUSINESS OR PROFESSION CARRIED ON BY THE ASSESSEE, WHETHER OR NOT THE DEBTS OF THE BUSINESS OR PROFESSION ARE ALLOWED AS A DEDUCTION IN COMPUTING THE AMOUNT WITH REFERENCE TO WHICH SUCH T AX IS CHARGED, BUT DOES NOT INCLUDE ANY TAX CHARGEABLE WITH REFERENCE TO THE VALUE OF ANY PARTICULAR ASSET OF THE BUSINESS OR PROFESSION;] [(IIB) ANY AMOUNT - 20 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION (A) PAID BY WAY OF ROYALTY, LICENCE FEE, SERVICE FE E, PRIVILEGE FEE, SERVICE CHARGE OR ANY OTHER FEE OR CHARGE, BY WHATE VER NAME CALLED, WHICH IS LEVIED EXCLUSIVELY ON; OR (B) WHICH IS APPROPRIATED, DIRECTLY OR INDIRECTLY, FROM, A STATE GOVERNMENT UNDERTAKING BY THE STATE GOVERNM ENT. EXPLANATION. - FOR THE PURPOSES OF THIS SUB-CLAUSE, A STATE GOVERNMENT UNDERTAKING INCLUDES - (I) A CORPORATION ESTABLISHED BY OR UNDER ANY ACT O F THE STATE GOVERNMENT; (II) A COMPANY IN WHICH MORE THAN FIFTY PER CENT OF THE PAID-UP EQUITY SHARE CAPITAL IS HELD BY THE STATE GOVERNMENT; (III) A COMPANY IN WHICH MORE THAN FIFTY PER CENT O F THE PAID-UP EQUITY SHARE CAPITAL IS HELD BY THE ENTITY REFERRED TO IN CLAUSE (I) OR CLAUSE (II) (WHETHER SINGLY OR TAKEN TOGETHER); (IV) A COMPANY OR CORPORATION IN WHICH THE STATE GO VERNMENT HAS THE RIGHT TO APPOINT THE MAJORITY OF THE DIRECTORS OR T O CONTROL THE MANAGEMENT OR POLICY DECISIONS, DIRECTLY OR INDIREC TLY, INCLUDING BY VIRTUE OF ITS SHAREHOLDING OR MANAGEMENT RIGHTS OR SHAREHOLDERS AGREEMENTS OR VOTING AGREEMENTS OR IN ANY OTHER MAN NER; (V) AN AUTHORITY, A BOARD OR AN INSTITUTION OR A BO DY ESTABLISHED OR CONSTITUTED BY OR UNDER ANY ACT OF THE STATE GOVERN MENT OR OWNED OR CONTROLLED BY THE STATE GOVERNMENT; [(III) ANY PAYMENT WHICH IS CHARGEABLE UNDER THE HE AD 'SALARIES', IF IT IS PAYABLE (A) OUTSIDE INDIA; OR (B) TO A NON-RESIDENT, AND IF THE TAX HAS NOT BEEN PAID THEREON NOR DEDUCT ED THEREFROM UNDER CHAPTER XVII-B; (IV) ANY PAYMENT TO A PROVIDENT OR OTHER FUND ESTAB LISHED FOR THE BENEFIT OF EMPLOYEES OF THE ASSESSEE, UNLESS THE AS SESSEE HAS MADE EFFECTIVE ARRANGEMENTS TO SECURE THAT TAX SHALL BE DEDUCTED AT SOURCE 21 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION FROM ANY PAYMENTS MADE FROM THE FUND WHICH ARE CHAR GEABLE TO TAX UNDER THE HEAD 'SALARIES' ; [(V) ANY TAX ACTUALLY PAID BY AN EMPLOYER REFERRED TO IN CLAUSE (10CC) OF SECTION 10;] [(B) IN THE CASE OF ANY FIRM ASSESSABLE AS SUCH, (I) ANY PAYMENT OF SALARY, BONUS, COMMISSION OR REM UNERATION, BY WHATEVER NAME CALLED (HEREINAFTER REFERRED TO AS 'R EMUNERATION' ) TO ANY PARTNER WHO IS NOT A WORKING PARTNER; OR (II) ANY PAYMENT OF REMUNERATION TO ANY PARTNER WHO IS A WORKING PARTNER, OR OF INTEREST TO ANY PARTNER, WHICH, IN E ITHER CASE, IS NOT AUTHORISED BY, OR IS NOT IN ACCORDANCE WITH, THE TE RMS OF THE PARTNERSHIP DEED; OR (III) ANY PAYMENT OF REMUNERATION TO ANY PARTNER WH O IS A WORKING PARTNER, OR OF INTEREST TO ANY PARTNER, WHICH, IN E ITHER CASE, IS AUTHORISED BY, AND IS IN ACCORDANCE WITH, THE TERMS OF THE PARTNERSHIP DEED, BUT WHICH RELATES TO ANY PERIOD (FALLING PRIOR TO THE DATE OF SUCH PARTNERSH IP DEED) FOR WHICH SUCH PAYMENT WAS NOT AUTHORISED BY, OR IS NOT IN AC CORDANCE WITH, ANY EARLIER PARTNERSHIP DEED, SO, HOWEVER, THAT THE PER IOD OF AUTHORISATION FOR SUCH PAYMENT BY ANY EARLIER PARTNERSHIP DEED DOES NOT COVER ANY PER IOD PRIOR TO THE DATE OF SUCH EARLIER PARTNERSHIP DEED; OR (IV) ANY PAYMENT OF INTEREST TO ANY PARTNER WHICH I S AUTHORISED BY, AND IS IN ACCORDANCE WITH, THE TERMS OF THE PARTNERSHIP DEED AND RELATES TO ANY PERIOD FALLING AFTER THE DATE OF SUCH PARTNERSH IP DEED IN SO FAR AS SUCH AMOUNT EXCEEDS THE AMOUNT CALCULATED AT THE RA TE OF [TWELVE] PER CENT SIMPLE INTEREST PER ANNUM; OR (V) ANY PAYMENT OF REMUNERATION TO ANY PARTNER WHO IS A WORKING PARTNER, WHICH IS AUTHORISED BY, AND IS IN ACCORDAN CE WITH, THE TERMS OF THE PARTNERSHIP DEED AND RELATES TO ANY PERIOD FALL ING AFTER THE DATE OF SUCH PARTNERSHIP DEED IN SO FAR AS THE AMOUNT OF SU CH PAYMENT TO ALL THE PARTNERS DURING THE PREVIOUS YEAR EXCEEDS THE A GGREGATE AMOUNT COMPUTED AS HEREUNDER :- (A) ON THE FIRST RS. 3,00,000 OF THE BOOK-PROFIT OR I N CASE OF A LOSS RS. 1,50,000 OR AT THE RATE OF 90 PER CENT OF THE BOOK- PROFIT, WHICHEVER IS MORE; 22 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION (B) ON THE BALANCE OF THE BOOK-PROFIT AT THE RATE OF 60 PER CENT :] PROVIDED THAT IN RELATION TO ANY PAYMENT UNDER THIS CLAUSE T O THE PARTNER DURING THE PREVIOUS YEAR RELEVANT TO THE AS SESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1993, THE TERMS OF THE PARTNERSHIP DEED MAY, AT ANY TIME DURING THE SAID P REVIOUS YEAR, PROVIDE FOR SUCH PAYMENT. EXPLANATION 1.-WHERE AN INDIVIDUAL IS A PARTNER IN A FIRM ON BEHALF, OR FOR THE BENEFIT, OF ANY OTHER PERSON (SUCH PARTNER AND THE OTHER PERSON BEING HEREINAFTER REFERRED TO AS 'PARTNER IN A REPR ESENTATIVE CAPACITY' AND 'PERSON SO REPRESENTED', RESPECTIVELY),- (I) INTEREST PAID BY THE FIRM TO SUCH INDIVIDUAL OT HERWISE THAN AS PARTNER IN A REPRESENTATIVE CAPACITY, SHALL NOT BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF THIS CLAUSE; (II) INTEREST PAID BY THE FIRM TO SUCH INDIVIDUAL A S PARTNER IN A REPRESENTATIVE CAPACITY AND INTEREST PAID BY THE FI RM TO THE PERSON SO REPRESENTED SHALL BE TAKEN INTO ACCOUNT FOR THE PUR POSES OF THIS CLAUSE. EXPLANATION 2. - WHERE AN INDIVIDUAL IS A PARTNER I N A FIRM OTHERWISE THAN AS PARTNER IN A REPRESENTATIVE CAPACITY, INTER EST PAID BY THE FIRM TO SUCH INDIVIDUAL SHALL NOT BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF THIS CLAUSE, IF SUCH INTEREST IS RECEIVED BY HIM ON BEHALF, OR FOR THE BENEFIT, OF ANY OTHER PERSON. EXPLANATION 3. - FOR THE PURPOSES OF THIS CLAUSE, ' BOOK-PROFIT' MEANS THE NET PROFIT, AS SHOWN IN THE PROFIT AND LOSS ACC OUNT FOR THE RELEVANT PREVIOUS YEAR, COMPUTED IN THE MANNER LAID DOWN IN CHAPTER IV-D AS INCREASED BY THE AGGREGATE AMOUNT OF THE REMUNERATI ON PAID OR PAYABLE TO ALL THE PARTNERS OF THE FIRM IF SUCH AMO UNT HAS BEEN DEDUCTED WHILE COMPUTING THE NET PROFIT. EXPLANATION 4. - FOR THE PURPOSES OF THIS CLAUSE, ' WORKING PARTNER' MEANS AN INDIVIDUAL WHO IS ACTIVELY ENGAGED IN COND UCTING THE AFFAIRS OF THE BUSINESS OR PROFESSION OF THE FIRM OF WHICH HE IS A PARTNER;] (BA) IN THE CASE OF AN ASSOCIATION OF PERSONS OR BO DY OF INDIVIDUALS [OTHER THAN A COMPANY OR A CO-OPERATIVE SOCIETY OR A SOCIETY REGISTERED UNDER THE SOCIETIES REGISTRATION ACT, 1860 (21 OF 1 860), OR UNDER ANY LAW CORRESPONDING TO THAT ACT IN FORCE IN ANY PART OF INDIA], ANY PAYMENT OF INTEREST, SALARY, BONUS, COMMISSION OR R EMUNERATION, BY WHATEVER NAME CALLED, MADE BY SUCH ASSOCIATION OR B ODY TO A MEMBER OF SUCH ASSOCIATION OR BODY. 23 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION EXPLANATION 1.- WHERE INTEREST IS PAID BY AN ASSOCI ATION OR BODY TO ANY MEMBER THEREOF WHO HAS ALSO PAID INTEREST TO THE AS SOCIATION OR BODY, THE AMOUNT OF INTEREST TO BE DISALLOWED UNDER THIS CLAUSE SHALL BE LIMITED TO THE AMOUNT BY WHICH THE PAYMENT OF INTER EST BY THE ASSOCIATION OR BODY TO THE MEMBER EXCEEDS THE PAYME NT OF INTEREST BY THE MEMBER TO THE ASSOCIATION OR BODY. EXPLANATION 2.- WHERE AN INDIVIDUAL IS A MEMBER OF AN ASSOCIATION OR BODY ON BEHALF, OR FOR THE BENEFIT, OF ANY OTHER PE RSON (SUCH MEMBER AND THE OTHER PERSON BEING HEREINAFTER REFERRED TO AS 'MEMBER IN A REPRESENTATIVE CAPACITY' AND 'PERSON SO REPRESENTED ', RESPECTIVELY), - (I) INTEREST PAID BY THE ASSOCIATION OR BODY TO SUC H INDIVIDUAL OR BY SUCH INDIVIDUAL TO THE ASSOCIATION OR BODY OTHERWIS E THAN AS MEMBER IN A REPRESENTATIVE CAPACITY, SHALL NOT BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF THIS CLAUSE; (II) INTEREST PAID BY THE ASSOCIATION OR BODY TO SU CH INDIVIDUAL OR BY SUCH INDIVIDUAL TO THE ASSOCIATION OR BODY AS MEMBE R IN A REPRESENTATIVE CAPACITY AND INTEREST PAID BY THE AS SOCIATION OR BODY TO THE PERSON SO REPRESENTED OR BY THE PERSON SO REPRE SENTED TO THE ASSOCIATION OR BODY, SHALL BE TAKEN INTO ACCOUNT FO R THE PURPOSES OF THIS CLAUSE. EXPLANATION 3.- WHERE AN INDIVIDUAL IS A MEMBER OF AN ASSOCIATION OR BODY OTHERWISE THAN AS MEMBER IN A REPRESENTATIVE C APACITY, INTEREST PAID BY THE ASSOCIATION OR BODY TO SUCH INDIVIDUAL SHALL NOT BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF THIS CLAUSE, IF SU CH INTEREST IS RECEIVED BY HIM ON BEHALF, OR FOR THE BENEFIT, OF ANY OTHER PERSON.] (C) OMITTED BY THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, W.E.F. 1- 4-1989. EARLIER, IT WAS AMENDED BY THE FINANCE ACT, 1963, W.E.F. 1-4- 1963, FINANCE ACT, 1964, W.E.F. 1-4-1964, FINANCE A CT, 1965, W.E.F. 1- 4-1965, FINANCE ACT, 1968, W.E.F. 1-4-1969, FINANCE (NO. 2) ACT, 1971, W.E.F. 1-4-1972, FINANCE ACT, 1984, W.E.F. 1-4-1985 AND DIRECT TAX LAWS (AMENDMENT) ACT, 1987, W.E.F. 1-4-1988. (D) OMITTED BY THE FINANCE ACT, 1988, W.E.F. 1-4-19 89.' 21. A PERUSAL OF SECTION 40 REVEALS THAT FIRSTLY IT STA RTS WITH A NON OBSTANTE CLAUSE. SECONDLY, IT STATES THAT NOTWITHST ANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE AMOUNTS AS S PECIFIED IN THE CLAUSES TO SECTION 40 SHALL NOT BE DEDUCTED IN COMP UTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS OR GAINS OF BUSI NESS OR PROFESSION'. IN THE CASE OF ANY ASSESSEE WHAT SUB-CLAUSE (I) OF THIS SECTION STATES IS THAT ANY INTEREST NOT FALLING IN THE BRACKET PORTIO N, UNSPECIFIED ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER THE INCOME 24 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION TAX ACT, WHICH IS PAYABLE OUTSIDE INDIA OR IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY ON WHIC H TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID, WI LL BE COVERED BY THE PROHIBITION ENACTED AS ABOVE. 22. THE PROVISO TO THIS SUB-CLAUSE (I) REVEALS THAT WH ERE IN RESPECT OF SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT Y EAR OR HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR, BUT PAID AFTER T HE DUE DATE SPECIFIED IN SUB-SECTION (I) OF SECTION 139, SUCH S UM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. 23. THEN SECTION 40(A)(IA) REFERS TO THE THIRTY PER CE NT OF ANY SUM PAYABLE ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER THE SAME CHAPTER AS ABOVE AND SUCH TAX HAS NOT BEEN DEDUCTED OR AFTE R DEDUCTION HAS NOT BEEN PAID. 24. WE HAVE REPRODUCED THE ENTIRE SECTION FOR THE SIMP LE REASON THAT THE AMOUNT MENTIONED IN SECTION 40(A)(I) SHALL NOT BE DEDUCTED IN CASE IT IS PAYABLE IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY. THEREFORE, IN THE CASE OF ANY ASSE SSEE IF ANY INTEREST, ROYALTY, FEES OR TECHNICAL SERVICE OR OTH ER SUM CHARGEABLE UNDER THE INCOME TAX ACT PAYABLE OUTSIDE INDIA OR P AYABLE IN INDIA TO A NON-RESIDENT NOT BEING A COMPANY OR A FOREIGN COM PANY ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B, IS CO VERED. 25. SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID, THEN, THE DEDUCTION SHALL NOT BE MADE IN COMP UTING THE TOTAL INCOME CHARGEABLE. 26. IT IS FOR THIS REASON THAT WE HAVE TO REFER TO CHA PTER XVII B. CHAPTER XVII DEALS WITH COLLECTION AND RECOVERY OF TAX. IT CONTAINS GENERAL PROVISIONS WITH REGARD TO DEDUCTION AT SOUR CE AND ADVANCE PAYMENT IN SECTION 190 AND IN SECTION 191 IT MAKES PROVISIONS REGARDING DIRECT PAYMENT. IT HAS A SEPARATE CHAPTER UNDER SUB- HEADING 'B - DEDUCTION AT SOURCE.' IN THE INSTANT C ASE, IT IS COMMON GROUND THAT REFERENCE IS MADE TO SECTIONS 192 TO 19 5. THEY PERTAIN TO SALARY AND, THEREFORE, ANY PERSON RESPONSIBLE FOR P AYING ANY INCOME CHARGEABLE UNDER THE HEAD 'SALARIES' SHALL, AT THE TIME OF PAYMENT, DEDUCT INCOME-TAX ON THE AMOUNT PAYABLE AT THE AVER AGE RATE OF INCOME-TAX COMPUTED ON THE BASIS OF RATES IN FORCE FOR THE FINANCIAL YEAR IN WHICH THE PAYMENT IS MADE, ON THE ESTIMATED INCOME OF THE ASSESSEE UNDER THIS HEAD FOR THAT FINANCIAL YEAR. I F PAYMENT OF ACCUMULATED BALANCE TO AN EMPLOYEE IS MADE, THEN AL SO THIS OBLIGATION COMES IN VIDE SECTION 192A. IF THE INTEREST ON SECU RITIES IS THE INCOME HEAD INVOLVED, THEN, THE PERSON RESPONSIBLE FOR PAY ING TO A RESIDENT ANY INCOME OF THIS NATURE SHALL MAKE THE DEDUCTION. THE SAME OBLIGATION WOULD ARISE IN THE CASE OF DIVIDEND VIDE SECTION 194. INTEREST OTHER THAN INTEREST ON SECURITIES WITH REGARD TO WH ICH ANY PAYMENT IS MADE THEN THAT ASPECT IS COVERED BY SECTION 194A. W INNINGS FROM LOTTERY OR CROSS-WORD PUZZLE AND WINNING FROM HORSE RACES ARE COVERED BY SECTION 194B AND 194BB. 27. PAYMENTS TO CONTRACTORS, IF MADE, PARTICULARLY RES IDENT CONTRACTORS, THEN THE OBLIGATION TO DEDUCT THE INCOME-TAX AT SOU RCE FLOWS FROM SECTION 194C. SIMILARLY, INSURANCE COMMISSION, PAYM ENT IN RESPECT OF 25 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION LIFE INSURANCE POLICY, PAYMENTS TO NONRESIDENT SPOR TSMEN OR SPORTS ASSOCIATION, PAYMENTS IN RESPECT OF DEPOSITS UNDER THE NATIONAL SAVINGS SCHEMES ETC. ATTRACT THE DEDUCTION OF TAX A T SOURCE. THE OTHER PAYMENTS INCLUDING THE CATEGORY OF COMMISSION OR BR OKERAGE FALL WITHIN THE OBLIGATION TO PAY TAX. PAYMENT FOR TRANSFER OF CERTAIN IMMOVABLE PROPERTY OTHER THAN AGRICULTURAL LANDS INVITES DEDU CTION OF INCOME-TAX AT SOURCE VIDE SECTION 194IA. THEN THE FEES FOR PRO FESSIONAL OR TECHNICAL SERVICE INVITES THE SAME OBLIGATION BY SE CTION 194J. SEVERAL OTHER SECTIONS OF THIS NATURE WHERE AMOUNT IS PAID TO A RESIDENT OR THE INCOME IS GENERATED OR EARNED BY A RESIDENT WOULD A TTRACT THE DEDUCTION OF TAX AT SOURCE. SECTION 194LC DEALS WIT H INCOME BY WAY OF INTEREST FROM INDIAN COMPANY AND WHERE ANY INCOME B Y WAY OF INTEREST REFERRED TO IN SUB-SECTION (2) OF THIS SEC TION IS PAYABLE TO A NON-RESIDENT, BEING A COMPANY OR TO A FOREIGN COMPA NY BY A SPECIFIED COMPANY OR BUSINESS TRUST, THE PERSON RESPONSIBLE F OR MAKING THE PAYMENT AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT IN CASH OR BY ISSUE OF CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT THE INCOME-TAX THEREON AT THE RATE OF FIVE PERCENT. THEREFORE, THE TAX IS TO BE DEDUCTED AT SOURCE, THE MANNER OF ITS DEDUCTION AND THE TIME ARE SPECIFIED SO ALSO THE RATE. AFTER SECTION 194LC AND 194LD COMES SECTION 195 WHICH READS AS UNDER: '195. (1) ANY PERSON RESPONSIBLE FOR PAYING TO A NO N-RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTER EST NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 19 4LC OR SECTION LD OR ANY OTHER SUM CHARGEABLE UNDER THE HEAD 'SALARIES' SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYE E OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE; PROVIDED THAT IN THE CASE OF INTEREST PAYABLE BY THE GOVERNM ENT OR A PUBLIC SECTOR BANK WITHIN THE MEANING OF CLAUSE (23 D) OF SECTION 10 OR A PUBLIC FINANCIAL INSTITUTION WITHIN THE MEANING O F THAT CLAUSE, DEDUCTION OF TAX SHALL BE MADE ONLY AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE. PROVIDED FURTHER THAT NO SUCH DEDUCTION SHALL BE MADE IN RESPECT OF ANY DIVIDENDS REFERRED TO IN SECTION 115-O. EXPLANATION 1.-FOR THE PURPOSES OF THIS SECTION, WH ERE ANY INTEREST OR OTHER SUM AS AFORESAID IS CREDITED TO ANY ACCOUNT, WHETHER CALLED 'INTEREST PAYABLE ACCOUNT' OR 'SUSPENSE ACCOUNT' OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON LIABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SEC TION SHALL APPLY ACCORDINGLY. EXPLANATION 2. - FOR THE REMOVAL OF DOUBTS, IT IS H EREBY CLARIFIED THAT THE OBLIGATION TO COMPLY WITH SUB-SECTION (1) AND T O MAKE DEDUCTION THEREUNDER APPLIES AND SHALL BE DEEMED TO HAVE ALWA YS APPLIED AND EXTENDS AND SHALL BE DEEMED TO HAVE ALWAYS EXTENDED TO ALL PERSONS, RESIDENT OR NON-RESIDENT, WHETHER OR NOT THE NON-RE SIDENT PERSON HAS - (I) A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CO NNECTION IN INDIA; OR (II) ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. 26 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION (2) WHERE THE PERSON RESPONSIBLE FOR PAYING ANY SUC H SUM CHARGEABLE UNDER THIS ACT (OTHER THAN SALARY) TO A NON-RESIDEN T CONSIDERS THAT THE WHOLE OF SUCH SUM WOULD NOT BE INCOME CHARGEABLE IN THE CASE OF THE RECIPIENT, HE MAY MAKE AN APPLICATION TO THE ASSESS ING OFFICER TO DETERMINE, BY GENERAL OR SPECIAL ORDER, THE APPROPR IATE PROPORTION OF SUCH SUM SO CHARGEABLE, AND UPON SUCH DETERMINATION , TAX SHALL BE DEDUCTED UNDER SUB-SECTION (1) ONLY ON THAT PROPORT ION OF THE SUM WHICH IS SO CHARGEABLE. (3) SUBJECT TO RULES MADE UNDER SUB-SECTION (5), AN Y PERSON ENTITLED TO RECEIVE ANY INTEREST OR OTHER SUM ON WHICH INCOME-T AX HAS TO BE DEDUCTED UNDER SUBSECTION (1) MAY MAKE AN APPLICATI ON IN THE PRESCRIBED FORM TO THE ASSESSING OFFICER FOR THE GR ANT OF A CERTIFICATE AUTHORISING HIM TO RECEIVE SUCH INTEREST OR OTHER S UM WITHOUT DEDUCTION OF TAX UNDER THAT SUB-SECTION, AND WHERE ANY SUCH CERTIFICATE IS GRANTED, EVERY PERSON RESPONSIBLE FOR PAYING SUC H INTEREST OR OTHER SUM TO THE PERSON TO WHOM SUCH CERTIFICATE IS GRANT ED SHALL, SO LONG AS THE CERTIFICATE IS IN FORCE, MAKE PAYMENT OF SUCH I NTEREST OR OTHER SUM WITHOUT DEDUCTING TAX THEREON UNDER SUB-SECTION (1) . (4) A CERTIFICATE GRANTED UNDER SUB-SECTION (3) SHA LL REMAIN IN FORCE TILL THE EXPIRY OF THE PERIOD SPECIFIED THEREIN OR, IF I T IS CANCELLED BY THE ASSESSING OFFICER BEFORE THE EXPIRY OF SUCH PERIOD, TILL SUCH CANCELLATION. (5) THE BOARD MAY, HAVING REGARD TO THE CONVENIENCE OF ASSESSEES AND THE INTERESTS OF REVENUE, BY NOTIFICATION IN THE OF FICIAL GAZETTE, MAKE RULES SPECIFYING THE CASES IN WHICH, AND THE CIRCUM STANCES UNDER WHICH, AN APPLICATION MAY BE MADE FOR THE GRANT OF A CERTIFICATE UNDER SUB-SECTION (3) AND THE CONDITIONS SUBJECT TO WHICH SUCH CERTIFICATE MAY BE GRANTED AND PROVIDING FOR ALL OTHER MATTERS CONNECTED THEREWITH. (6) THE PERSON RESPONSIBLE FOR PAYING TO A NONRESID ENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY SUM, WHETHER OR NOT CHARGEABLE UNDER THE PROVISIONS OF THIS ACT, SHALL FURNISH THE INFORMATION RELATING TO PAYMENT OF SUCH SUM, IN SUC H FORM AND MANNER, AS MAY BE PRESCRIBED. (7) NOTWITHSTANDING ANYTHING CONTAINED IN SUBSECTIO N (1) AND SUB- SECTION (2), THE BOARD MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY A CLASS OF PERSONS OR CASES, WHERE THE PERS ON RESPONSIBLE FOR PAYING TO A NON-RESIDENT, NOT BEING A COMPANY, OR T O A FOREIGN COMPANY, ANY SUM, WHETHER OR NOT CHARGEABLE UNDER T HE PROVISIONS OF THIS ACT, SHALL MAKE AN APPLICATION TO THE ASSESSIN G OFFICER TO DETERMINE, BY GENERAL OR SPECIAL ORDER, THE APPROPR IATE PROPORTION OF SUM CHARGEABLE, AND UPON SUCH DETERMINATION, TAX SH ALL BE DEDUCTED UNDER SUB-SECTION (1) ON THAT PROPORTION OF THE SUM WHICH IS SO CHARGEABLE.' 28. THE EXPLANATION THERETO WOULD INDICATE AS TO HOW T HE TERM OR EXPRESSION 'NON-RESIDENT' IS UNDERSTOOD. WE ARE NOT REFERRING TO OTHER SECTIONS SIMPLY BECAUSE WE HAVE TO APPRECIATE THE A RGUMENT THAT TAX DEDUCTED AT SOURCE IS A RECOVERY AND SECTION 172(1) WILL PREVAIL OVER OTHER PROVISIONS OF THE ACT. 27 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION 29. IN THE PRESENT CASE, WE ARE CONCERNED WITH SHIPPIN G BUSINESS OF NON-RESIDENTS AND, THEREFORE, SECTION 172 WOULD HAV E TO BE REFERRED IN EXTENSO. THAT PROVISION READS AS UNDER : '172. (1) THE PROVISIONS OF THIS SECTION SHALL, NOT WITHSTANDING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THIS ACT, APPL Y FOR THE PURPOSE OF THE LEVY AND RECOVERY OF TAX IN THE CASE OF ANY SHI P, BELONGING TO OR CHARTERED BY A NON-RESIDENT, WHICH CARRIES PASSENGE RS, LIVESTOCK, MAIL OR GOODS SHIPPED AT A PORT IN INDIA. (2) WHERE SUCH A SHIP CARRIES PASSENGERS, LIVESTOCK , MAIL OR GOODS SHIPPED AT A PORT IN INDIA, [SEVEN AND A HALF] PER CENT OF THE AMOUNT PAID OR PAYABLE ON ACCOUNT OF SUCH CARRIAGE TO THE OWNER OR THE CHARTERER OR TO ANY PERSON ON HIS BEHALF, WHETHER T HAT AMOUNT IS PAID OR PAYABLE IN OR OUT OF INDIA, SHALL BE DEEMED TO B E INCOME ACCRUING IN INDIA TO THE OWNER OR CHARTERER ON ACCOUNT OF SUCH CARRIAGE. (3) BEFORE THE DEPARTURE FROM ANY PORT IN INDIA OF ANY SUCH SHIP, THE MASTER OF THE SHIP SHALL PREPARE AND FURNISH TO THE [ASSESSING] OFFICER A RETURN OF THE FULL AMOUNT PAID OR PAYABLE TO THE OWNER OR CHARTERER OR ANY PERSON ON HIS BEHALF, ON ACCOUNT OF THE CARRIAG E OF ALL PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPED AT THAT PORT SINCE THE LAST ARRIVAL OF THE SHIP THEREAT: PROVIDED THAT WHERE THE [ASSESSING] OFFICER IS SATISFIED THA T IT IS NOT POSSIBLE FOR THE MASTER OF THE SHIP TO FURNISH THE RETURN REQUIRED BY THIS SUB-SECTION BEFORE THE DEPARTURE OF THE SHIP F ROM THE PORT AND PROVIDED THE MASTER OF THE SHIP HAS MADE SATISFACTO RY ARRANGEMENTS FOR THE FILING OF THE RETURN AND PAYMENT OF THE TAX BY ANY OTHER PERSON ON HIS BEHALF, THE [ASSESSING] OFFICER MAY, IF THE RETURN IS FILED WITHIN THIRTY DAYS OF THE DEPARTURE OF THE SHIP, DEEM THE FILING OF THE RETURN BY THE PERSON SO AUTHORISED BY THE MASTER AS SUFFIC IENT COMPLIANCE WITH THIS SUBSECTION. (4) ON RECEIPT OF THE RETURN, THE [ASSESSING] OFFIC ER SHALL ASSESS THE INCOME REFERRED TO IN SUB-SECTION (2) AND DETERMINE THE SUM PAYABLE AS TAX THEREON AT THE RATE OR RATES [IN FORCE] APPL ICABLE TO THE TOTAL INCOME OF A COMPANY WHICH HAS NOT MADE THE ARRANGEM ENTS REFERRED TO IN SECTION 194 AND SUCH SUM SHALL BE PAYABLE BY THE MASTER OF THE SHIP. [(4A) NO ORDER ASSESSING THE INCOME AND DETERMINING THE SUM OF TAX PAYABLE THEREON SHALL BE MADE UNDER SUB-SECTION (4) AFTER THE EXPIRY OF NINE MONTHS FROM THE END OF THE FINANCIAL YEAR I N WHICH THE RETURN UNDER SUB-SECTION (3) IS FURNISHED: PROVIDED THAT WHERE THE RETURN UNDER SUB-SECTION (3) HAS BEE N FURNISHED BEFORE THE 1ST DAY OF APRIL, 2007, SUCH O RDER SHALL BE MADE ON OR BEFORE THE 31ST DAY OF DECEMBER, 2008.] (5) FOR THE PURPOSE OF DETERMINING THE TAX PAYABLE UNDER SUB-SECTION (4), THE [ASSESSING] OFFICER MAY CALL FOR SUCH ACCO UNTS OR DOCUMENTS AS HE MAY REQUIRE. (6) A PORT CLEARANCE SHALL NOT BE GRANTED TO THE SH IP UNTIL THE COLLECTOR OF CUSTOMS, OR OTHER OFFICER DULY AUTHORISED TO GRA NT THE SAME, IS SATISFIED THAT THE TAX ASSESSABLE UNDER THIS SECTIO N HAS BEEN DULY PAID OR THAT SATISFACTORY ARRANGEMENTS HAVE BEEN MADE FO R THE PAYMENT THEREOF. 28 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION (7) NOTHING IN THIS SECTION SHALL BE DEEMED TO PREV ENT THE OWNER OR CHARTERER OF A SHIP FROM CLAIMING BEFORE THE EXPIRY OF THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE DAT E OF DEPARTURE OF THE SHIP FROM THE INDIAN PORT FALLS, THAT AN ASSESSMENT BE MADE OF HIS TOTAL INCOME OF THE PREVIOUS YEAR AND THE TAX PAYABLE ON THE BASIS THEREOF BE DETERMINED IN ACCORDANCE WITH THE OTHER PROVISIO NS OF THIS ACT, AND IF HE SO CLAIMS, ANY PAYMENT MADE UNDER THIS SECTIO N IN RESPECT OF THE PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPED AT IND IAN PORTS DURING THAT PREVIOUS YEAR SHALL BE TREATED AS A PAYMENT IN ADVANCE OF THE TAX LEVIABLE FOR THAT ASSESSMENT YEAR, AND THE DIFFEREN CE BETWEEN THE SUM SO PAID AND THE AMOUNT OF TAX FOUND PAYABLE BY HIM ON SUCH ASSESSMENT SHALL BE PAID BY HIM OR REFUNDED TO HIM, AS THE CASE MAY BE. (8) FOR THE PURPOSES OF THIS SECTION, THE AMOUNT RE FERRED TO IN SUB- SECTION (2) SHALL INCLUDE THE AMOUNT PAID OR PAYABL E BY WAY OF DEMURRAGE CHARGE OR HANDLING CHARGE OR ANY OTHER AM OUNT OF SIMILAR NATURE.' 30. A PERUSAL THEREOF WOULD REVEAL AS TO HOW THE PROVI SIONS OF THIS SECTION SHALL, NOTWITHSTANDING ANYTHING CONTAINED I N THE OTHER PROVISIONS OF THIS ACT, APPLY FOR THE PURPOSE OF TH E LEVY AND RECOVERY OF TAX IN THE CASE OF ANY SHIP, BELONGING TO OR CHARTE RED BY A NON-RESIDENT WHICH CARRIES PASSENGERS ETC. SHIPPED AT A PORT IN INDIA. THUS, THE PROVISIONS ARE MADE TO TAKE CARE OF THE INCOME OF S HIPPING BUSINESS OF NON-RESIDENTS AND FOR PURPOSE OF LEVY AND RECOVERY OF TAX THEREON. 31. SECTION 195 DEALS WITH OTHER SUMS. IT FALLS UNDER CHAPTER XVII TITLED AS COLLECTION AND RECOVERY - DEDUCTION AT SO URCE. IT HAS SEVERAL SUB-HEADINGS STYLED AS A-GENERAL, B-DEDUCTION AT SO URCE, BB- COLLECTION AT SOURCE, C-ADVANCE PAYMENT OF TAX, D-C OLLECTION AND RECOVERY, E-TAX PAYABLE UNDER PROVISIONAL ASSESSMEN T (WHICH IS DELETED NOW) AND F AND G TITLED AS INTEREST CHARGEA BLE IN CERTAIN CASES AND LEVY OF FEE IN CERTAIN CASES. 32. IN THE CASE AT HAND, WE ARE NOT CONCERNED WITH DED UCTION AT SOURCE OF TAX ON PAYMENT OF SALARY, PAYMENT OF ACCU MULATED BALANCE DUE TO AN EMPLOYEE, INTEREST ON SECURITIES, DIVIDEN DS AND SUCH OF THE PAYMENTS AND INCOMES WHICH ARE DEALT WITH BY SECTIO N 194-A TO 194- LD. WE ARE CONCERNED WITH A PROVISION DEALING WITH OTHER SUMS. 33. A PERUSAL THEREOF WOULD INDICATE AS TO HOW ANY PER SON RESPONSIBLE FOR PAYING TO A NON-RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST NOT BEING INTEREST REFERRED T O IN SECTIONS 194LB OR 194LC OR 194LD OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES') SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT IN CASH OR BY CHEQUE OR D RAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THERE ON AT THE RATES IN FORCE. 34. THE QUESTION BEFORE US IS IF SECTION 172 DEALS WIT H SHIPPING BUSINESS OF NON-RESIDENTS AND CONTAINS A NON-OBSTAN TE CLAUSE AND APPLIES FOR THE PURPOSE OF THE LEVY AND RECOVERY OF TAX IN THE CASE OF ANY SHIP, BELONGING TO OR CHARTERED BY A NON-RESIDE NT WHICH CARRIES PASSENGERS ETC. SHIPPING AT A PORT IN INDIA, THEN, IS THERE ANY OBLIGATION TO DEDUCT THE TAX AT SOURCE IN TERMS OF SECTION 195. 29 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION 35. IT IS STATED ON BEHALF OF THE ASSESSEE THAT TAX DE DUCTED AT SOURCE IS A RECOVERY AND, THEREFORE, SECTION 172(1) WILL PREV AIL OVER THE PROVISIONS OF THE ACT. RELIANCE IS ALSO PLACED UPON THE CIRCULAR IN THAT BEHALF. THAT CIRCULAR READS AS UNDER : '916. CLARIFICATION REGARDING TREATMENT OF TAX PAID UNDE R SECTION 172(3)(4) BY A NONRESIDENT ENGAGED IN SHIPPING BUSINESS 1. THE BOARD HAD EARLIER ISSUED CIRCULAR NO. 730 RE GARDING 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 MA KES A VOYAGE FROM A PORT IN INDIA, CARRYING PASSENGERS, LIVESTOCK, MA IL 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 D EEMED AS THE INCOME AND TAX IS LEVIED ON SUCH INCOME AT A RATE APPLICAB LE TO A FOREIGN COMPANY. THE ASSESSMENT AND THE PAYMENT IS TO BE MA DE BEFORE THE SHIP IS GRANTED THE PORT CLEARANCE. THE EXCEPTION I S THAT, IN SUITABLE CASES THE SHIP MAY BE ALLOWED TO LEAVE PROVIDED SAT ISFACTORY ARRANGEMENTS ARE MADE TO ENSURE THAT THE RETURN OF INCOME IF FILED AND PAYMENT OF TAX IS MADE WITHIN 30 DAYS OF THE DEPART URE OF THE SHIP. 2. UNDER THE PROVISIONS OF SECTION 172(7), THE NONR ESIDENT OWNER OR CHARTERER IS ALLOWED AN OPTION TO BE ASSESSED ON HI S TOTAL INCOME OF THE PREVIOUS YEAR IN ACCORDANCE WITH OTHER PROVISIONS O F 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 A SSESSMENT IS MADE UNDER SECTION 143(3), READ WITH THE PROVISIONS OF S ECTION 172(7), WHETHER SUCH AN ASSESSEE WOULD LIABLE TO LEVY OF IN TEREST UNDER SECTIONS 234B AND 234C OR NOT. ON THE OTHER HAND, I N CASE OF A REFUND, THE QUESTION OF ENTITLEMENT OF INTEREST UNDER SECTI ON 244A WOULD ALSO RISE. THE BOARD, VIDE CIRCULAR NO. 730, DATED 14-12 -1995 CLARIFIED THAT THE ASSESSEE, WHO EXERCISES HIS OPTION UNDER SECTIO N 172(7) TO GET HIS TOTAL INCOME ASSESSED IN ACCORDANCE WITH THE OTHER PROVISIONS OF THE ACT, IS NEITHER LIABLE TO PAY INTEREST UNDER SECTIO NS 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 D ECIDED BY THE SUPREME COURT IN THE CASE OF A. S. GLITTRE D/5 I/S GARONNE V. CIT [1997] 225 ITR 739. IT HAS BEEN HELD THAT THE PAYME NT OF TAX UNDER SECTION 172(3)/(4) IS AT PAR WITH ADVANCE TAX INSTA LMENTS. HENCE, IN CASE OF A REGULAR ASSESSMENT UNDER SECTION 172(7) T HE ASSESSEE IS ENTITLED TO REFUND, AS WELL AS INTEREST ON SUCH REF UND. 5. THE CIRCULAR NO. 730 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES ON THIS ISSUE IS, UNDER THE CIRCUMSTANCES, NO LONGER L EGALLY TENABLE AND IS, THEREFORE, WITHDRAWN. IT IS CLARIFIED THAT IN CASE OF REGULAR ASSESSMENT UNDER SECTION 172(7), THE NONRESIDENT ASSESSEE IS L IABLE TO PAY INTEREST UNDER SECTIONS 234B AND 234C AND ALSO ENTITLED TO R ECEIVE INTEREST UNDER SECTION 244A OF THE INCOME-TAX ACT, 1961 AS T HE CASE MAY BE. 30 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION CIRCULAR NO. 9/2001, DATED 9-7-2001.' 36. IT IS VEHEMENTLY CONTENDED THAT THE REVENUE CANNOT ARGUE ANYTHING CONTRARY TO THIS CIRCULAR. THIS CIRCULAR E VEN OTHERWISE STATES THE POSITION IN LAW CORRECTLY. IT IS THEN URGED THA T THE JUDGMENT IN THE CASE OF ORIENT (GOA)(SUPRA) DOES NOT LAY DOWN THE C ORRECT LAW. 37. A CLOSER LOOK AT THE JUDGMENT IS, THEREFORE, NECES SARY. 38. THE APPEAL BEFORE THIS COURT RAISED FOUR QUESTIONS WHICH ARE REPRODUCED HEREINBELOW : (A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE INCOME-TAX APPELLATE TRIBUNAL WAS RIGHT IN LAW IN H OLDING THAT IN VIEW OF CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT T AXES, DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT WAS NOT WARRANTED ? (B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES, THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION OF THE DEMURRAGE CHARGE S OF RS.1,08,53,980 PAID TO FOREIGN COMPANY, WITHOUT DED UCTING TAX ON IT, UNDER SECTION 40(A)(I) OF THE INCOME-TAX ACT, IN VI EW OF CIRCULAR NO. 723 DATED SEPTEMBER 19, 1995 ([1995] 215 ITR (ST) 1 16), ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES ? (C) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION OF THE DEM URRAGE CHARGES OF RS.1,08,53,980 PAYABLE TO FOREIGN SHIPPING COMPANY ON WHICH TAX HAS NOT BEEN DEDUCTED, IN VIEW OF THE PROVISIONS OF SEC TION 172(8) INTRODUCED BY THE FINANCE ACT, 1997 WITH RETROSPECT IVE EFFECT FROM APRIL 1, 1976 ? (D) WHETHER THE CIRCULAR ISSUED BY THE CENTRAL BOAR D OF DIRECT TAXES DATED SEPTEMBER 19, 1995, HAS ANY RELEVANCE IN APPL Y THE PROVISIONS OF SECTION 40(A)(I) FOR THE PURPOSE OF COMPUTATION OF INCOME ?' 39. THE RESPONDENT-ASSESSEE ORIENT (GOA) IN THAT APPEA L HAD FILED ITS RETURN OF INCOME ON DECEMBER 1, 1997. IT DECLARED A TAXABLE INCOME AT A CERTAIN FIGURE AND AFTER CLAIMING DEDUCTION. THAT DEDUCTION WAS ONCE AGAIN OF A CERTAIN SUM ON ACCOUNT OF SECTION 80HHC OF THE INCOME-TAX ACT. THIS RETURN OF INCOME WAS PROCESSED AND THE AS SESSMENT WAS COMPLETED. CERTAIN ADDITIONS WERE MADE ON ACCOUNT O F FOREIGN TOUR EXPENSES OF PARTNERS BEING PERSONAL EXPENSES OF THE PARTNERS OF THE ASSESSEE-COMPANY. A NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED BY THE REVENUE TO THE ASSESSEE PURSUANT TO WHICH AN ORDER OF ASSESSMENT WAS PASSED BY THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 1, PANAJI. THAT CAME TO BE CHALLENGED BEFORE THE COMMISSIONER (APPEALS), GOA. BEFORE THE FIRST APPELLATE AUTHORIT Y, THE GROUND REGARDING DISALLOWANCE OF FOREIGN TOUR EXPENSES WAS NOT PRESSED. HOWEVER, BEFORE THE FIRST APPELLATE AUTHORITY, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(AI) WAS R AISED AND THE FIRST APPELLATE AUTHORITY FOUND THE DISALLOWANCE TO BE CO RRECT. THIS DISALLOWANCE WAS DIRECTED TO BE DELETED. IN SUBSTAN CE, THEREFORE, THE APPEAL SUCCEEDED. THE REVENUE CHALLENGED THIS ORDER BEFORE THE INCOME TAX APPELLATE TRIBUNAL, IN APPEAL AND WHICH CAME TO BE DISMISSED. 40. THEREFORE, IN PARAGRAPH 3 THE CONTENTION OF THE RE VENUE WAS NOTED AND IT WAS URGED THAT THE ASSESSEE WAS UNDER AN OBLIGATION TO DEDUCT THE TAX IN VIEW OF SECTION 40(A)(I) IN RELAT ION TO THE AMOUNT 31 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION PAYABLE OUTSIDE INDIA. THE ASSESSEE RELIED UPON THE NON-OBSTANTE CLAUSE IN SECTION 172 (1) IN MEETING THIS CONTENTIO N. IT WAS URGED THAT THIS SECTION IS A CODE BY ITSELF. 41. THE DIVISION BENCH NOTED THAT THE CONTENTIONS ARIS E IN THE BACKDROP OF A DEDUCTION OF TAX ON A SUM PAYABLE OR PAID ON ACCOUNT OF DEMURRAGE. THE DEMURRAGE IS PAYABLE TO A NONRESIDEN T COMPANY BASED IN JAPAN. IT WAS NOT DISPUTED THAT NO TAX HAD BEEN DEDUCTED ON THE AMOUNT OF DEMURRAGE. WHEN THE ASSESSEE WAS CALLED U PON TO EXPLAIN WHY NO TAX HAD BEEN DEDUCTED AND, THEREFORE, THE CL AIM AS A WHOLE SHOULD BE TREATED AS NON DEDUCTIBLE AND THE SUM ADD ED BACK, IT WAS URGED THAT TAX WAS NOT DEDUCTED IN VIEW OF SECTION 40(A)(I) OF THE ACT. A CONTENTION WAS RAISED THAT THE ASSESSEE BEING ALL OWED SUCH DEDUCTION AS AND WHEN PAYMENT WAS MADE. THE ASSESSI NG OFFICER RECORDED HIS AGREEMENT IN THE ORDER THAT DEDUCTION WOULD BE ADMISSIBLE ON THE BASIS OF ACTUAL PAYMENT OF TAX ON THE ABOVE DEMURRAGE. THE FIRST APPELLATE AUTHORITY REFERRED T O THE RELEVANT PROVISIONS AND OBSERVED THAT THE DEMURRAGE DEBITED BY THE ASSESSEE IN THE HANDS OF THE RECIPIENT ARE IN THE NATURE OF PRO FITS OF THE NON- RESIDENT FROM THE OCCASIONAL SHIPPING BUSINESS UNDE R SECTION 44B READ WITH SECTION 172 OF THE INCOME-TAX ACT. THE FIRST A PPELLATE AUTHORITY REFERRED TO SUB-SECTION (8) OF SECTION 172 AND THE CIRCULAR REPRODUCED ABOVE BY US. THAT IS HOW THE APPEAL CAME TO BE ALLO WED. 42. THE DIVISION BENCH REFERRED TO A JUDGMENT OF A LEA RNED SINGLE JUDGE OF THE KARNATAKA HIGH COURT AND IN PARAGRAPHS 8, 9, 10, 11 AND 12 HELD AS UNDER : '8. WE HAVE GIVEN ANXIOUS CONSIDERATION TO THE SUBM ISSION OF THE LEARNED SENIOR COUNSEL. ON READING OF THE ENTIRE JU DGMENT OF THE LEARNED SINGLE BENCH, IT IS NOT POSSIBLE FOR US TO COUNTENANCE THE SUBMISSION OF THE LEARNED SENIOR ADVOCATE THAT THE RATIO OF THE JUDGMENT IS APPLICABLE TO THE FACTS OF THE CASE ON HAND. IN OUR VIEW, THIS JUDGMENT DOES NOT HELP THE PRESENT RESPONDENT I.E. THE ASSESSEE. 9. ANOTHER JUDGMENT RELIED ON BY THE LEARNED SENIOR ADVOCATE MR. USGAONKAR FOR THE RESPONDENT ASSESSEE IS IN THE MAT TER OF CBDT V. CHOWGULE AND CO. LTD. AND OTHERS, REPORTED IN [1991 ] 192 ITR 40 (KARN). THERE THE LEARNED DIVISION BENCH OBSERVED T HAT 'THE QUESTION FOR CONSIDERATION IS WHETHER DEMURRAGE PAYABLE TO A NON-RESIDENT OWNER OR CHARTERER OF A SHIP FOR THE DELAY IN LOADI NG THE ORE SOLD TO THE FOREIGNER IS LIABLE TO BE TAXED UNDER THE PROVISION S OF THE INCOME-TAX ACT.' WE HAVE SEEN THE FACTS OBTAINING IN THAT CASE . IN OUR VIEW, THE FACTS ARE DISTINGUISHABLE. THE RATIO OF THIS JUDGME NT ALSO DOES NOT HELP THE PRESENT ASSESSEE I.E. THE RESPONDENT IN THIS AP PEAL. WE HAVE NOTICED THE VARIOUS DATES IN THE CITED JUDGMENT. WE HAVE ALSO CONSIDERED THE DEFINITION OF WORD 'DEMURRAGE' TO WH ICH OUR ATTENTION WAS INVITED BY LEARNED SENIOR ADVOCATE SHRI USGAONK AR. LEARNED SENIOR ADVOCATE ALSO INVITED OUR ATTENTION TO DICTI ONARY MEANING OF THE WORD 'DEMURRAGE' (BLACK'S LAW DICTIONARY). 10. SECTION 172 OF THE ACT 1961 IS CAREFULLY CONSID ERED BY US. CHAPTER XV TITLES AS 'LIABILITY IN SPECIAL CASES'. WE HAVE NO CONCERN WITH SECTIONS, STARTING FROM SECTION 159, TILL SECTION 1 71 FROM THIS CHAPTER XV. SECTION 172 COMES UNDER SUB-TITLE 'H.-PROFITS O F NON-RESIDENTS FROM OCCASIONAL SHIPPING BUSINESS'. TITLE OF SECTIO N 172 IS 'SHIPPING BUSINESS OF NON-RESIDENTS.' FOR BRINGING A CASE UND ER CHAPTER XV, H OF 32 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION THE ACT 1961, ONE HAS TO ESTABLISH A CASE OF PROFIT S OF NON-RESIDENTS FROM OCCASIONAL SHIPPING BUSINESS. 'NON-RESIDENT' I S DEFINED UNDER SECTION 2(30), AS A PERSON WHO IS NOT A 'RESIDENT' AND FOR THE PURPOSE OF SECTIONS 92, 93 AND 168, INCLUDES A PERSON WHO I S NOT ORDINARILY RESIDENT WITHIN THE MEANING OF CLAUSE (6) OF SECTIO N 6. THE RESPONDENT ASSESSEE IS A COMPANY, INCORPORATED UNDER THE PROVI SIONS OF INDIAN COMPANIES ACT, 1956, IS FAIRLY AN ADMITTED POSITION . THE ASSESSEE CANNOT BE SAID TO BE NONRESIDENT. WE HAVE ALSO TAKE N NOTICE OF SECTION 6 I.E. 'RESIDENCE IN INDIA'. IN SHORT, RESPONDENT A SSESSEE CANNOT BE SAID TO BE NON-RESIDENT. THE PRESENT APPEAL PERTAIN S TO THE RESPONDENT ASSESSEE. IN OUR VIEW, IN THE FACTS OF THE PRESENT CASE, THE RESPONDENT ASSESSEE CANNOT LAY FINGERS ON SECTION 172, SINCE W E ARE NOT DEALING WITH PROFITS OF NON-RESIDENTS. THE OTHER ASPECT IS THAT SUCH PROFITS OF NON-RESIDENTS SHOULD BE FROM OCCASIONAL SHIPPING BU SINESS. IT IS NOT THE CASE THAT THE RESPONDENT ASSESSEE HAS EARNED SO ME PROFIT FROM OCCASIONAL SHIPPING AND IS A NON-RESIDENT. IN OUR V IEW, SECTION 172 DOES NOT HAVE APPLICATION IN RELATION TO THE RESPON DENT ASSESSEE AND IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. TH E COMPANY FROM JAPAN VIZ. MITSUI & CO. LTD., JAPAN, RECIPIENT OF D EMURRAGE AMOUNT IS NOT BEFORE US. IN OTHER WORDS, WE ARE NOT EXAMINING THE TAX LIABILITY OF THE FOREIGN COMPANY I.E. MITSUI & CO. LTD., JAPAN. ON OUR QUERY TO THE LEARNED SENIOR ADVOCATE SHRI USGAONKAR AS TO MATERI AL ON RECORD FOR OCCASIONAL SHIPPING, PART OF PARA 3 FROM THE JUDGME NT OF THE LEARNED COMMISSIONER OF INCOME-TAX HAS BEEN POINTED OUT TO US. HIS OBSERVATIONS ARE IN VERY FEW LINES. WE MAY REPRODUC E THE SAID PORTION HEREIN BELOW. ' 3. WE HAVE HEARD THE RIVAL SUBMISSI ONS IN THE LIGHT OF MATERIAL PLACED BEFORE US. ASSESSEE CLAIMED DEDUCTI ON OF RS.1,08,53,980/- BEING THE AMOUNT OF DEMURRAGE PAYA BLE TO MITSUI CO. LTD., JAPAN. THE ASSESSING OFFICER OPINED THAT SINC E THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE, AS SUCH THE CASE OF THE A SSESSEE FALLS WITHIN THE MISCHIEF OF SECTION 40(A)(I) OF THE INCOME TAX ACT, 1961.' PROVISIONS OF SECTION 172 ARE TO APPLY NOTWITHSTAND ING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THE ACT. THERE FORE, IN SUCH CASES, THE PROVISIONS OF SECTION 194C AND 195 RELATING TO TAX DEDUCTION AT SOURCE, ARE NOT APPLICABLE. THE RECOVERY OF TAX IS TO BE REGULATED FOR VOYAGE UNDERTAKEN FROM ANY PORT IN INDIA BY A SHIP, UNDER THE PROVISIONS OF SECTION 172. IN THIS VIEW, THESE OBSE RVATIONS OF THE LEARNED VICE PRESIDENT OF INCOME TAX APPELLATE TRIB UNAL HAVE NO CONCERN WITH THE FACTUAL ASPECT THAT IT IS A CASE O F OCCASIONAL SHIPPING, PLEADED OR RAISED BY ASSESSEE. THERE IS NO DISPUTE ABOUT INTERPRETATION OF SECTION 172 OR SECTION 195. CRUCIAL POINT IS AS TO HOW SECTION 172 APPLIES TO THE FACTS OF THE PRESENT CASE WHEREIN TH E RESPONDENT ASSESSEE IS AN INDIAN COMPANY, INCORPORATED UNDER T HE PROVISIONS OF INDIAN COMPANIES ACT, 1956. IN OUR VIEW, THE LEARNE D VICE PRESIDENT OF THE ITAT HAS RECORDED A PERVERSE OBSERVATION/FINDIN G IN PARA 3 REGARDING APPLICATION OF SECTION 44B AND 172 OF THE ACT 1961. 11. WE MAY NOTICE THAT THE JUDGMENT OF THE LEARNED APPELLATE TRIBUNAL IS UNREASONED AND CRYPTIC ONE. THIS JUDGMENT RUNS I N AROUND 20 TO 25 LINES. WE ARE NOT OBLIVIOUS OF THE FACT, THAT NOT T HE FORM, BUT SUBSTANCE IS MATERIAL. THE LEARNED APPELLATE TRIBUNAL SEEMS T O HAVE REFERRED TO THE CIRCULAR OF CENTRAL BOARD OF DIRECT TAXES, NO.7 23 DATED SEPTEMBER 19, 1995. ([1995] 215 ITR (ST.)116). 33 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION 12. WE HAVE CONSIDERED THE SUBMISSION OF THE LEARNE D COUNSEL APPEARING FOR THE PARTIES PERTAINING TO THE CIRCULA R NO.723 DATED 19.9.1995 BY CBDT (ANNEXURE 'C'). SECTION 119 EMPOW ERS THE CENTRAL BOARD OF DIRECT TAXES TO GIVE INSTRUCTIONS TO SUBOR DINATE AUTHORITIES. WE HAVE CONSIDERED SECTION 119 OF THE ACT 1961. WE HAVE ALSO PERUSED THE CIRCULAR ANNEXURE C. THIS CIRCULAR SEEM S TO HAVE BEEN ISSUED BY THE CBDT, CLARIFYING THE SCOPE OF SECTION S 172, 194C AND 195 OF THE ACT 1961. ADVOCATE ON BEHALF OF THE REVE NUE POINTS OUT FROM PARA 4 OF THE CIRCULAR AND SUBMIT S THAT SECTI ON 172 OPERATES IN THE AREA OF COMPUTATION OF PROFITS FROM SHIPPING BU SINESS OF NON- RESIDENTS AND THERE IS NO OVERLAPPING IN THE AREAS OF OPERATION OF THESE SECTIONS. LEARNED SENIOR ADVOCATE SHRI USGAONKAR, A PPEARING ON BEHALF OF THE RESPONDENT ASSESSEE, ALSO DREW OUR AT TENTION TO THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE MATTER OF COMMISSIONER OF SALES TAX V. INDRA INDUSTRIES, REPORTED IN [2001 ] 248 ITR 338 (SC). IT IS A THREE BENCH JUDGMENT OF THE HONOURABLE SUPR EME COURT. IT HAS BEEN HELD BY THE HONOURABLE SUPREME COURT THAT THE CIRCULARS ISSUED BY COMMISSIONER OF SALE TAX NOT BINDING ON ASSESSEE OR COURT, HOWEVER, BINDING ON THE DEPARTMENT. IN THE CASE ON HAND, IN OUR VIEW, LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) AND TH E LEARNED APPELLATE TRIBUNAL HAVE WRONGLY INTERPRETED THE CIR CULAR DATED SEPTEMBER 19, 1995, ISSUED BY THE CBDT. THIS CIRCUL AR, IN OUR OPINION, CANNOT BE CONSIDERED IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, IN AID TO THE RESPONDENT ASSESSEE. THE LEARNE D ASSESSING OFFICER, IN FACT, HAS PASSED A LEGAL, PROPER AND REASONED OR DER, HOLDING THAT THE PROVISIONS LAID DOWN UNDER SECTION 40(A)(I) OF THE ACT 1961 APPLY TO THE CASE ON HAND.' 43. THE SUB-HEADINGS OF CHAPTER XV WHICH IS TITLED AS LIABILITY IN SPECIAL CASES - PROFITS OF NON-RESIDENTS ARE REFERR ED BY THE DIVISION BENCH. IN SUB-HEADING 'H - PROFITS OF NON-RESIDENTS FROM OCCASIONAL SHIPPING BUSINESS' APPEARS SECTION 172. THE DIVISIO N BENCH UNDERSTOOD THE MATTER AND AS REFLECTED FROM THE ABO VE REPRODUCED PARAGRAPHS BY IDENTIFYING THE ASSESSEE BEFORE IT WH OSE INCOME WAS BEING ASSESSED. THE DIVISION BENCH HELD THAT THE RE SPONDENT-ASSESSEE, A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE INDIAN COMPANIES ACT, 1956, CANNOT BE SAID TO BE A NON-RESIDENT. THE APPEALS PERTAINED TO THE RESPONDENT-ASSESSEE. IT, THEREFORE, COULD NO T RELY ON SECTION 172 SINCE THE COURT WAS NOT DEALING WITH PROFITS OF NON -RESIDENTS. THE OTHER ASPECT IS THAT SUCH PROFITS OF NON-RESIDENTS SHOULD BE FROM OCCASIONAL SHIPPING BUSINESS. THE RESPONDENT-ASSESSEE BEFORE T HE DIVISION BENCH, AS ADMITTED, DID NOT EARN SOME PROFITS FROM OCCASIO NAL SHIPPING BUSINESS NOR IS IT A NON-RESIDENT. THEREFORE, SECTI ON 172 DID NOT HAVE ANY APPLICATION IN RELATION TO THE RESPONDENT-ASSES SEE IN THE FACTS AND CIRCUMSTANCES OF THAT CASE. HOWEVER, IN PARAGRAPH 1 0, THE DIVISION BENCH ACCEPTED THE LEGAL POSITION THAT SECTION 172 WOULD APPLY NOTWITHSTANDING ANYTHING CONTAINED IN THE OTHER PRO VISIONS OF THE ACT. THEREFORE, IN SUCH CASES, THE PROVISIONS OF SECTION 194C AND 195 RELATING TO TAX DEDUCTION AT SOURCE ARE NOT APPLICA BLE. THE DIVISION BENCH HELD THAT THERE IS NO DISPUTE ABOUT INTERPRET ATION OF SECTIONS 172 OR 195. THE CRUCIAL POINT, ACCORDING TO THE BENCH, WAS HOW SECTION 172 APPLIES TO THE FACTS OF THE CASE BEFORE IT WHEREIN THE RESPONDENT- ASSESSEE IS AN INDIAN COMPANY, INCORPORATED UNDER T HE PROVISIONS OF THE INDIAN COMPANIES ACT, 1956. 34 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION 44. THE LEGAL PROVISIONS HAVE BEEN REFERRED BY US EXTE NSIVELY ONLY FOR THE PURPOSE OF UNDERSTANDING THE SCHEME OF THE ACT. SECTION 40 DEALS WITH AMOUNTS NOT DEDUCTIBLE. THE AMOUNTS WHICH CANN OT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD P ROFITS AND GAINS OF BUSINESS OR PROFESSION IN THE CASE OF AN ASSESSE E ARE SET OUT IN CLAUSE (A) AND SUB-CLAUSE (I) REFERS TO ANY INTERES T, ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER TH E INCOME-TAX ACT WHICH IS PAYABLE OUTSIDE INDIA OR IN INDIA TO A NON -RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BE EN DEDUCTED OR AFTER DEDUCTION HAS NOT BEEN PAID. SECTION 172 HAS APPLICATION TO SHIPPING BUSINESS OF NON-RESIDENTS AND THE PROVISIO NS OF THAT SECTION HAVE APPLICATION NOTWITHSTANDING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THE ACT FOR THE PURPOSE OF LEVY AND R ECOVERY OF TAX IN THE CASE OF ANY SHIP, BELONGING TO OR CHARTERED BY A NO N-RESIDENT WHICH CARRIES PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPE D AT A PORT IN INDIA. SECTION 195 FALLING UNDER CHAPTER XVII-B COLLECTION AND RECOVERY - DEDUCTION AT SOURCE BY SUB-SECTION (1) DEALS WITH A NY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST OR ANY OTHER SUM CHAR GEABLE UNDER THE PROVISIONS OF THIS ACT, NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES' AND OBLIGES HIM TO DEDUCT INCOME TAX THE REON AT THE RATES IN FORCE. IT IS EVIDENT, THEREFORE, THAT THE RESPONSIB ILITY IS ON ANY PERSON MAKING PAYMENT TO A NON-RESIDENT. IT IS THAT PERSON 'S OBLIGATION TO DEDUCT THE TAX AT SOURCE. IF THE TAX IS DEDUCTIBLE AT SOURCE AND ANY ASSESSEE DECLARES HIS INCOME CHARGEABLE UNDER THE H EAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', WHILE COMPUTING T HE INCOME CHARGEABLE UNDER THIS HEAD, THE AMOUNTS MENTIONED I N SECTION 40(A)(I) SHOULD NOT BE DEDUCTED IN THE EVENT THERE IS A FAIL URE TO DEDUCT THE TAX AT SOURCE IN TERMS OF CHAPTER XVII-B. THEREFORE, A SUM OUGHT TO BE OF THE NATURE PAYABLE UNDER SUB-CLAUSE (I) OUTSIDE IND IA OR IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, BUT WHICH INVITES THE OBLIGATION TO DEDUCT THE TAX AT SOURCE ON THE PAYMENT THEREOF. THE ASSESSEE MAY BE A RESIDENT IN INDIA. T HE ASSESSEE IN OUR CASE ALSO, AS BEFORE THE DIVISION BENCH, IS A COMPA NY REGISTERED UNDER THE INDIAN COMPANIES ACT, 1956, IN INDIA. IT IS A R ESIDENT. IT IS THE ASSESSEE'S INCOME UNDER THE ABOVE HEADS FROM WHICH CERTAIN DEDUCTION HAS BEEN DISALLOWED. THAT IS FOR FAILURE TO DISCHAR GE THE OBLIGATION TO DEDUCT THE TAX AT SOURCE. THE ASSESSEE CONTENDS THA T THE PAYMENT IS MADE TO A NON-RESIDENT / FOREIGN COMPANY AND, THERE FORE, THERE MAYBE AN OBLIGATION TO DEDUCT THE TAX AT SOURCE IN TERMS OF SUB-SECTION (1) OF SECTION 195 BUT THE OVERRIDING PROVISION IN SECTION 172 WILL COME TO ITS ASSISTANCE. 45. THE SHIPPING BUSINESS OF NON-RESIDENTS IS AN ASPEC T DEALT WITH BY SECTION 172. WHILE CONSIDERING THE LEVY AND RECOVER Y OF TAX IN CASE OF SUCH BUSINESS WHICH IS CARRIED ON WITH THE AID OF A NY SHIP BELONGING TO OR CHARTERED BY A NON-RESIDENT WHICH CARRIES PASSEN GERS ETC. SHIPPED AT A PORT IN INDIA, THEN, IT IS TO COMPUTE THE TAX AND RECOVER IT IN RELATION TO SUCH BUSINESS OF A NON-RESIDENT THAT SE CTION 172 IS INCORPORATED IN THE STATUTE BOOK. WE HAVE FOUND THA T THERE ARE SPECIAL PROVISIONS FOR COMPUTING PROFITS AND GAINS FOR SHIP PING BUSINESS IN THE CASE OF A NONRESIDENT AND ENACTED BY SECTION 44B WH ICH FALLS IN CHAPTER IV - COMPUTATION OF BUSINESS INCOME. THAT S ECTION READS AS UNDER: 35 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION '44B. (1) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTIONS 28 TO 43A, IN THE CASE OF AN ASSESSEE, BEI NG A NON-RESIDENT, ENGAGED IN THE BUSINESS OF OPERATION OF SHIPS, A SU M EQUAL TO SEVEN AND A HALF PER CENT OF THE AGGREGATE OF THE AMOUNTS SPECIFIED IN SUB- SECTION (2) SHALL BE DEEMED TO BE THE PROFITS AND G AINS OF SUCH BUSINESS CHARGEABLE TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' . (2) THE AMOUNTS REFERRED TO IN SUB-SECTION (1) SHAL L BE THE FOLLOWING, NAMELY :- (I) THE AMOUNT PAID OR PAYABLE (WHETHER IN OR OUT O F INDIA) TO THE ASSESSEE OR TO ANY PERSON ON HIS BEHALF ON ACCOUNT OF THE CARRIAGE OF PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPED AT ANY PORT IN INDIA; AND (II) THE AMOUNT RECEIVED OR DEEMED TO BE RECEIVED I N INDIA BY OR ON BEHALF OF THE ASSESSEE ON ACCOUNT OF THE CARRIAGE O F PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPED AT ANY PORT OUTSID E INDIA. EXPLANATION.- FOR THE PURPOSES OF THIS SUB-SECTION, THE AMOUNT REFERRED TO IN CLAUSE (I) OR CLAUSE (II) SHALL INCLUDE THE A MOUNT PAID OR PAYABLE OR RECEIVED OR DEEMED TO BE RECEIVED, AS THE CASE M AY BE, BY WAY OF DEMURRAGE CHARGES OR HANDLING CHARGES OR ANY OTHER AMOUNT OF SIMILAR NATURE.' 46. A BARE PERUSAL THEREOF WOULD INDICATE AS TO HOW TH IS PROVISION COVERS THE CASE OF AN ASSESSEE WHO IS A NON-RESIDEN T AND ENGAGED IN THE BUSINESS OF OPERATION OF SHIPS. THAT STIPULATES A SUM EQUAL TO 7% OF THE AGGREGATE OF THE AMOUNT SPECIFIED IN SUB-SEC TION (2) OF SECTION 44B AS DEEMED TO BE PROFITS AND GAINS OF SUCH BUSIN ESS CHARGEABLE TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS O R PROFESSION'. IT IS THE EXPLANATION WHICH REFERS TO THE DEMURRAGE AND F OR THE PURPOSE OF SUB-SECTION (2) OF SECTION 44B. IT CLARIFIES THAT T HE AMOUNT PAID OR PAYABLE OR RECEIVED OR DEEMED TO BE RECEIVED, AS TH E CASE MAY BE, BY WAY OF DEMURRAGE CHARGES OR HANDLING CHARGES OR ANY OTHER AMOUNT OF SIMILAR NATURE SHALL FOR THE PURPOSES OF SUB-SECTIO N (1) DEEMED TO BE THE PROFITS AND GAINS OF THE BUSINESS, NAMELY, SHIP PING BUSINESS CHARGEABLE TO TAX UNDER THAT HEAD. THE AMOUNTS WHIC H ARE PAID OR PAYABLE WHETHER IN OR OUT OF INDIA TO THE ASSESSEE OR TO ANY PERSON ON HIS BEHALF ON ACCOUNT OF CARRIAGE OF PASSENGERS, LI VESTOCK, MAIL OR GOODS SHIPPED AT A PORT IN INDIA AND THE AMOUNT REC EIVED WAS DEEMED TO BE RECEIVED IN INDIA BY OR ON BEHALF OF THE ASSE SSEE ON ACCOUNT OF THE CARRIAGE OF PASSENGERS, LIVESTOCK, MAIL OR GOOD S SHIPPED AT ANY PORT OUTSIDE INDIA SHALL BE DEEMED TO BE THE PROFIT S AND GAINS. ON THAT THE TAX IS PAYABLE BY VIRTUE OF SUBSECTION (1) OF S ECTION 172. THAT HAS TO BE LEVIED AND RECOVERED IN TERMS OF THE SUB-SECT IONS OF SECTION 172 OF THE INCOME TAX ACT. ONCE SECTION 172 FALLS IN CH APTER XV TITLED AS LIABILITY IN SPECIAL CASES - PROFITS OF NON-RESIDEN TS, THEN SECTION 172 IS REFERABLE TO SECTION 44B. BOTH PROVISIONS OPEN WITH A NON-OBSTANTE CLAUSE AND WHEREAS SECTION 44B ENACTS SPECIAL PROVI SIONS FOR COMPUTING PROFITS AND GAINS OF SHIPPING BUSINESS IN CASE OF NON- RESIDENTS SECTION 172 DEALING WITH SHIPPING BUSINES S OF NON-RESIDENTS IS ENACTED FOR THE PURPOSE OF LEVY AND RECOVERY OF TAX IN THE CASE OF ANY SHIP BELONGING TO OR CHARTERED BY A NON-RESIDENT OP ERATED FROM INDIA. THESE SECTIONS AND PARTICULARLY SECTION 172 DEVISE A SCHEME FOR LEVY AND RECOVERY OF TAX. THE SUB-SECTIONS OF SECTION 44 B DENOTE AS TO HOW THE AMOUNTS PAID TO OR PAYABLE WOULD INCLUDE DEMURR AGE CHARGES OR 36 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION HANDLING CHARGES OR ANY OTHER AMOUNT OF SIMILAR NAT URE. THE SUB- SECTIONS OF SECTION 172 READ TOGETHER AND HARMONIOU SLY WOULD REVEAL AS TO HOW THE TAX SHOULD BE LEVIED, COMPUTED, ASSES SED AND RECOVERED. THEREFORE, THERE IS NO WARRANT IN APPLYING THE PROV ISIONS IN CHAPTER XVII FOR COLLECTION AND RECOVERY OF THE TAX AND ITS DEDUCTION AT SOURCE VIDE SECTION 195. 47. TO OUR MIND, THE DIVISION BENCH JUDGMENT IN COMMIS SIONER OF INCOME-TAX V. ORIENT (GOA) PVT. LTD. SEEN IN THIS L IGHT DOES NOT, WITH GREATEST RESPECT, TAKE INTO ACCOUNT THE SCHEME AND SETTING AS UNDERSTOOD ABOVE. THERE NEED NOT BE APPREHENSION BE CAUSE THERE IS NO ESCAPE FROM THE LEVY AND RECOVERY OF TAX. THE TA X HAS TO BE LEVIED AND COLLECTED. THE SHIP CANNOT LEAVE THE PORT OR IF ALLOWED TO LEAVE ANY PORT IN INDIA, IT MUST EITHER PAY OR MAKE ARRANGEME NT TO PAY THE TAX. HENCE, THE APPREHENSION OF AVOIDANCE OR EVASION BOT H ARE TAKEN CARE OF BY THE LEGISLATURE. THAT IS HOW ADVISEDLY THE LE GISLATURE CAST THE OBLIGATION TO DEDUCT TAX AT SOURCE ON THE PERSON RE SPONSIBLE TO MAKE PAYMENT TO A NON-RESIDENT IN SHIPPING BUSINESS. 48. THE RESIDENT ASSESSEE CONTENDED BEFORE THE DIVISIO N BENCH IN ORIENT (GOA) (SUPRA) AS WELL AS THE DIVISION BENCH WHICH MADE THE REFERRING ORDER THAT SECTION 172 OF THE INCOME TAX ACT HAS A BEARING AND AN IMPORTANT ONE ON THE OBLIGATION TO DEDUCT TA X AT SOURCE. THEREFORE, IT IS THE RECIPIENT'S POSITION AND THE P ERSPECTIVE IN WHICH THE RECIPIENT'S INCOME WOULD BE TAXED WILL HAVE TO BE B ORNE IN MIND. THE NON-RESIDENT SHIPPING COMPANY IN RESPECT OF IT'S IN COME WOULD BE IN A POSITION TO RELY UPON SECTION 44B AND CONSEQUENTLY SECTION 172. HOWEVER, WE DO NOT SEE HOW THERE IS AN OBLIGATION T O DEDUCT TAX AT SOURCE ON THE RESIDENT ASSESSEE/INDIAN COMPANY BEFO RE US. WHILE COMPUTING THE INCOME OF THE NON-RESIDENT INDIAN / F OREIGN COMPANY, ASSISTANCE CAN BE DERIVED BY SUCH NON-RESIDENTS FRO M SECTION 44B IF THEY ARE IN SHIPPING BUSINESS. IT WOULD ALSO BE IN A POSITION TO RELY UPON SECTION 172 BUT THE RESPONSIBILITY OF THE PERS ON MAKING PAYMENT TO A NON-RESIDENT IN SUB-SECTION (1) OF SECTION 195 CANNOT BE AVOIDED IN THE MANNER SET OUT IN OTHER CASES. THE SCHEME AS ABOVE OPERATES ONLY TO CASES COVERED BY SECTION 172 OF THE IT ACT AND NONE ELSE. 49. THE TERM 'NON-RESIDENT' MEANS A PERSON WHO IS NOT A RESIDENT AS PER SECTION 2(30) OF THE INCOME TAX ACT AND FOR THE PURPOSES OF SECTIONS 92, 93 AND 168, INCLUDES A PERSON WHO IS N OT ORDINARILY A RESIDENT WITHIN THE MEANING OF CLAUSE (6)OF SECTION 6. THE TERM 'PERSON' INCLUDES AN INDIVIDUAL, A HUF, A COMPANY, FIRM AND EVERY ARTIFICIAL JURIDICAL PERSON NOT FALLING WITHIN ANY OF THE PRECEDING SUB- CLAUSES OF CLAUSE (31) OF SECTION 2. BY SECTION 2(2 3A), A FOREIGN COMPANY IS DEFINED TO MEAN A COMPANY WHICH IS NOT A DOMESTIC COMPANY. HENCE, ANY PERSON RESPONSIBLE FOR PAYING T O A NON-RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY I NTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS A CT NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES', WOULD HAVE TO DEDUCT THE TAX THEREON AT THE RATES IN FORCE. 50. THE VIEW THAT WE ARE TAKING IS BASED ON THE ENUNCI ATION AND EXPOSITION OF LAW BY THE HON'BLE SUPREME COURT OF I NDIA, FIRSTLY IN THE CASE OF UNION OF INDIA V. GOSALIA SHIPPING (PVT.) L TD. REPORTED IN [1978] 3 SCC 23. INSOFAR AS SECTION 172 OF THE IT A CT AS IT STOOD THEN, 37 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION ITS AMBIT AND SCOPE, THE HON'BLE SUPREME COURT OF I NDIA HELD AS UNDER:- '.... 3. SECTION 172 OCCURS IN CHAPTER XV WHICH IS ENTITL ED 'LIABILITY IN SPECIAL CASES' AND THE SUB-HEADING OF THE SECTION I S 'PROFITS OF NON RESIDENTS FROM OCCASIONAL SHIPPING BUSINESS'. IT CR EATES A TAX LIABILITY IN RESPECT OF OCCASIONAL SHIPPING BY MAKING A SPECIAL PROVISION FOR THE LEVY AND RECOVERY OF TAX IN THE CASE OF A SHIP BELO NGING TO OR CHARTERED BY A NON-RESIDENT WHICH CARRIES PASSENGERS, LIVESTO CK, MAIL OR GOODS SHIPPED AT A PORT IN INDIA. THE OBJECT OF THE SECTI ON IS TO ENSURE THE LEVY AND RECOVERY OF TAX IN THE CASE OF SHIPS BELON GING TO OR CHARTERED BY NON-RESIDENTS. THE SECTION BRINGS TO TAX THE PRO FITS MADE BY THEM FROM OCCASIONAL SHIPPING, BY MEANS OF SUMMARY ASSES SMENT IN WHICH ONE-SIXTH OF THE GROSS AMOUNT RECEIVED BY THEM IS D EEMED TO BE THE ASSESSABLE PROFIT. BEFORE THE DEPARTURE OF THE SHIP , THE MASTER OF THE SHIP HAS TO FURNISH TO THE INCOME-TAX OFFICER A RET URNOF THE FULL AMOUNT PAID OR PAYABLE TO THE OWNER OR CHARTER ON ACCOUNT OF THE CARRIAGE OF PASSENGERS, GOODS ETC., SHIPPED AT THE PORT IN INDI A SINCE THE LAST ARRIVAL OF THE SHIP AT THE PORT. IN THE EVENT THAT, TO THE SATISFACTION OF THE INCOME-TAX OFFICER, THE MASTER IS UNABLE SO TO DO, HE HAS TO MAKE SATISFACTORY ARRANGEMENTS FOR THE FILING OF THE RET URN AND PAYMENT OF THE TAX BY ANY OTHER PERSON ON HIS BEHALF. A PORT C LEARANCE CANNOT BE GRANTED TO THE SHIP UNTIL THE TAX ASSESSABLE UNDER THE SECTION IS DULY PAID OR SATISFACTORY ARRANGEMENTS HAVE BEEN MADE FO R THE PAYMENT THEREOF. 4. THE ASSESSEE IN THIS CASE IS THE ALUMINIUM COMPA NY OF CANADA WHICH HAD TIME-CHARTERED THE SHIP AND ON WHOSE BEHA LF ITS SHIPPING AGENT, THE RESPONDENT, HAD EXECUTED THE GUARANTEE B OND. SINCE THE COMPANY IS A NON-RESIDENT AND THE SHIP CARRIED GOOD S WHICH WERE SHIPPED AT A PORT IN INDIA, THE CONDITIONS SPECIFIE D IN SUB-SECTION (1) ARE SATISFIED AND THE PROVISIONS OF SECTION 172 WIL L APPLY FOR THE PURPOSE OF LEVY OF TAX, NOTWITHSTANDING ANYTHING CO NTAINED IN THE OTHER PROVISIONS OF THE INCOME-TAX ACT. 5. THE CHARGING PROVISION IS CONTAINED IN SUB-SECTI ON (2) OF SECTION 172, THE RELEVANT PART OF WHICH PROVIDES THAT WHERE A SHIP BELONGING TO OR CHARTERED BY A NON-RESIDENT CARRIES GOODS SHIPPE D AT A PORT IN INDIA, ONE-SIXTH OF THE AMOUNT PAID OR PAYABLE 'ON ACCOUNT OF SUCH CARRIAGE' TO THE OWNER OR THE CHARTERER OR TO ANY PERSON ON H IS BEHALF SHALL BE DEEMED TOBE INCOME ACCRUING IN INDIA TO THE OWNER O R CHARTERER ON ACCOUNT OF SUCH CARRIAGE. THE SHIP WAS DELIVERED TO THE TIME-CHARTERERS AT BETUL, GOA, WHEREUPON THEY LOADED IT WITH THEIR OWN GOODS TO THE FULLEST CAPACITY OF THE SHIP. UNDER THE CHARTER-PAR TY, THE CHARTERERS HAD AGREED TO PAY TO THE OWNERS OF THE SHIP A SUM OF 4. 50 U. S. DOLLARS PER TON ON THE TOTAL DEAD WEIGHT CARRYING CAPACITY, PER CALENDAR MONTH, COMMENCING ON AND FROM THE DATE OF THE DELIVERY OF THE SHIP. THE SHORT QUESTION FOR CONSIDERATION IS WHETHER THE AMO UNT WHICH THE TIME- CHARTERERS HAD AGREED TO PAY TO THE OWNERS OF THE S HIP WAS PAYABLE 'ON ACCOUNT OF' THE CARRIAGE OF GOODS.......' 51. SIMILARLY, IN THE CASE OF A. S. CLITTRES D/5 I/S G ARONNE AND OTHERS V. COMMISSIONER OF INCOME TAX, KERALA-II REPORTED I N [1997] 9 SCC 546, ONCE AGAIN, AFTER REPRODUCTION OF SECTION 172 OF THE IT ACT, THE 38 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION HON'BLE SUPREME COURT OF INDIA EXPLAINED THE SCHEME OF THE SECTION IN THE FOLLOWING WORDS:- '7. THE SCHEME OF SECTION 172 OF THE ACT APPEARS TO BE THIS: SECTION 172(1) OF THE ACT GIVES A RIGHT TO THE INCOME TAX O FFICER TO LEVY AND RECOVER TAX IN THE CASE OF ANY SHIP BELONGING TO A NON-RESIDENT, IN A SUMMARY MANNER, (AD HOC ASSESSMENT) NOTWITHSTANDING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THE ACT. IT IS AN ABSOLUTE RIGHT CONFERRED ON THE ASSESSING AUTHORITY. THE ASSESSEE HAS NO RIGHT TO OBJECT TO THE SAME. NORMALLY, THIS WILL BE ASSESSME NT OF THE ASSESSEE FOR THE YEAR. BUT, UNDER SECTION 172(7) OF THE ACT A RIGHT IS GIVEN TO THE ASSESSEE TO CLAIM BEFORE THE EXPIRY OF THE ASSE SSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE DATE OF DEPARTURE OF THE SHIP FROM THE INDIAN PORT FALLS, THAT AN ASSESSMENT, ACC ORDING TO THE PROVISIONS OF THE ACT, IN A REGULAR MANNER BE MADE. THUS, A RIGHT IS GIVEN TO THE ASSESSEE TO OPT FOR A REGULAR ASSESSME NT ALTHOUGH A 'ROUGH AND READY' OR A 'SUMMARY ASSESSMENT' HAS ALR EADY BEEN MADE UNDER SECTION 172(4) OF THE ACT. IT IS A VALUABLE R IGHT. IF THE ASSESSEE EXERCISES THE RIGHT CONFERRED ON HIM UNDER SECTION 172(7) OF THE ACT, THE INCOME TAX OFFICER IS BOUND TO MAKE AN ASSESSME NT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF THE ASSESSEE AND THE TAX PAYABLE ON THE BASIS THEREOF 'SHOULD BE DETERMINED IN ACCORDANCE W ITH THE OTHER PROVISIONS OF THE ACT' AND ANY PAYMENT MADE UNDER T HE SECTION (EARLIER) 'SHALL BE TREATED AS A PAYMENT IN ADVANCE OF THE TAX' LEVIABLE FOR THAT ASSESSMENT YEAR AND THE DIFFERENCE BETWEEN THE SUM SO PAID AND THE AMOUNT OF TAX FOUND PAYABLE BY HIM ON SUCH ASSESSMENT, SHALL BE PAID TO THE ASSESSEE OR REFUNDED TO HIM. THE 'AD HOC' ASSESSMENT MADE UNDER SECTION 172(4) OF THE ACT IS SUPERSEDED AND A 'REGULAR ASSESSMENT' IS MADE AS PER THE PROVISIONS OF THE AC T. IN SUCH A CASE, IT IS ONLY PROPER AND APPROPRIATE TO HOLD THAT ALL 'TH E PROVISIONS' OF THE ACT IN THE DETERMINATION OF THE TAX LIABILITY INCLU DING THE ANCILLARY OR INCIDENTAL OR CONSEQUENTIAL MATTERS PERTAINING TO I T ARE NECESSARILY ATTRACTED. 8. SECTION 172(7) OF THE ACT PROVIDES THAT PAYMENT MADE UNDER THE SECTION SHALL BE TREATED AS A PAYMENT IN ADVANCE OF THE TAX LEVIABLE FOR THAT ASSESSMENT YEAR. IT ONLY MEANS THAT SUCH PAYME NT WOULD BE TREATED AS ADVANCE OF THE TAX LEVIABLE. SUCH PAYMEN TS ARE TREATED ON A PAR WITH ADVANCE INCOME TAX PAYMENTS. IT IS IMPLICI T FROM THE TENOR AND PHRASEOLOGY EMPLOYED IN SECTION 172(7) OF THE A CT TO THE EFFECT, 'PAYMENT MADE UNDER THE SECTION . SHALL BE TREATED AS A PAYMENT IN ADVANCE OF THE TAX LEVIABLE FOR THAT ASSESSMENT YEA R' THAT IN SUBSTANCE, A LEGAL FICTION IS CREATED BY WHICH THE PAYMENTS HAVE BEEN TREATED AS ADVANCE TAX. THAT IS THE PURPOSE FOR WHI CH THE LEGAL FICTION IS CREATED. IN CONSTRUING THE SAID LEGAL FICTION, I T WILL BE PROPER AND NECESSARY TO ASSUME ALL THOSE FACTS ON WHICH ALONE THE FICTION CAN OPERATE. THE LAW ON THE POINT HAS BEEN STATED IN IN NUMERABLE DECISIONS OF THIS COURT. IN MOND. IQBAL MADAR SHEIKH V. STATE OF MAHARASHTRA [1996] 1 SCC 722 A THREE-NUMBER BENCH OF THIS COURT STATED THE LAW THUS: '.....THE EFFECT OF A LEGAL FICTION BY DEEMING CLAU SE IS WELL KNOWN. LEGISLATURE CAN INTRODUCE A STATUTORY FICTION AND C OURTS HAVE TO PROCEED ON THE ASSUMPTION THAT SUCH STATE OF AFFAIRS EXISTS ON THE RELEVANT DATE, BECAUSE WHEN ONE IS BIDDEN TO TREAT AN IMAGIN ARY STATE OF AFFAIRS AS REAL HE HAS TO ALSO IMAGINE AS REAL THE CONSEQUE NCE WHICH SHALL FLOW 39 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION FROM IT UNLESS PROHIBITED BY SOME OTHER STATUTORY P ROVISION.' (EMPHASIS SUPPLIED) SO, NECESSARILY ALL THE PROVISIONS IN THE ACT IN RE SPECT OF THE PAYMENT OF ADVANCE TAX WILL APPLY. ON EFFECTING THE REGULAR ASSESSMENT, IF THERE IS ANY EXCESS PAYMENT MADE BY THE ASSESSEE, THEN TH E ASSESSEE WOULD BE ENTITLED TO THE EXCESS AMOUNT PAID AND ALSO INTE REST, FOR PAYMENTS MADE IN EXCESS OF THE TAX ASSESSED. WE ARE UNABLE T O APPRECIATE THE DISTINCTION DRAWN BY THE HIGH COURT BETWEEN 'ADVANC E TAX' AND 'PAYMENT IN ADVANCE OF THE TAX' MENTIONED IN SECTIO N 172(7) OF THE ACT. WE HOLD THAT THE DISTINCTION SO DRAWN HAS NO B ASIS. THE HIGH COURT HAS FURTEHR HELD THAT THE PAYMENT MADE UNDER SECTIO N 172(4) OF THE ACT IS NOT A PAYMENT OF ADVANCE TAX WITHIN THE MEAN ING OF THE ACT, AS THE TAX UNDER SECTION 172(4) OF THE ACT IS A PAYMEN T ON ASSESSMENT AND NOT A PAYMENT OF ADVANCE TAX UNDER THE ACT. WE ARE AFRAID THAT THE HIGH COURT HAS FAILED TO GIVE DUE EFFECT TO THE LANGUAGE EMPLOYED IN SECTION 172(7) OF THE ACT AND THE SCOPE OF THE L EGAL FICTION ENSHRINED THEREIN. THE REASONING OF THE HIGH COURT IS RATHER STRAINED AS THE DISTINCTION DRAWN IS WITHOUT ANY SUBSTANCE OR DIFFE RENCE. SECTION 172(7) OF THE ACT PROVIDES FOR A REGULAR ASSESSMENT , WHEREIN ALL THE PROVISIONS OF THE ACT WILL APPLY. IT IS NOT A MERE PROVISION FOR ADJUSTMENT. THE HIGH COURT WAS SWAYED BY THE TITLE USED IN THE CORRESPONDING PROVISION OF THE PREDECESSOR ACT (INC OME TAX ACT, 1922 - SECTION 44-C), WHEREIN THERE WAS A HEADING TO THE SECTION - 'ADJUSTMENT'. SECTION 172 OF THE ACT CONTAINS NO SU CH HEADING. WE HOLD THAT THE INCOME TAX APPELLATE TRIBUNAL WAS JUS TIFIED IN HOLDING THAT SINCE THE PAYMENT MADE UNDER SECTION 172(4) OF THE ACT IS, BY FICTION, TREATED AS ADVANCE TAX, ALL THE PROVISIONS IN RESPECT OF THE ADVANCE TAX WILL APPLY AND IF ON REGULAR ASSESSMENT MADE UNDER SECTION 172(7) OF THE ACT, THERE IS ANY EXCESS PAYM ENT MADE BY THE ASSESSEE, THEN THE ASSESSEE WOULD BE ENTITLED TO IT AND ALSO INTEREST THEREON UNDER SECTION 214 OF THE ACT. WE ANSWER THE QUESTION REFERRED TO THE HIGH COURT IN THE AFFIRMATIVE, IN FAVOUR OF THE ASSESSEES AND AGAINST THE REVENUE. ..' 52. LASTLY, IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PRIVATE LIMITED V. COMMISSIONER OF INCOME TAX AND ANR.REPORTED IN [ 2010] 10 SCC 29 THE HON'BLE SUPREME COURT OF INDIA HAD AN OCCASION TO CONSIDER THE AMBIT AND SCOPE OF SECTION 195 OF THE IT ACT. AFTER REPRODUCTION OF THE SECTION, AS IT STOOD AT THE RELEVANT TIME, THE HON' BLE SUPREME COURT OF INDIA HELD AS UNDER:- '6. UNDER SECTION 195(1), THE TAX HAS TO BE DEDUCTE D AT SOURCE FROM INTEREST (OTHER THAN INTEREST ON SECURITIES) OR ANY OTHER SUM (NOT BEING SALARIES) CHARGEABLE UNDER THE I.T. ACT IN THE CASE OF NON-RESIDENTS ONLY AND NOT IN THE CASE OF RESIDENTS. FAILURE TO D EDUCT THE TAX UNDER THIS SECTION MAY DISENTITLE THE PAYER TO ANY ALLOWA NCE APART FROM PROSECUTION UNDER SECTION 276B. THUS, SECTION 195 I MPOSES A STATUTORY OBLIGATION ON ANY PERSON RESPONSIBLE FOR PAYING TO A NON- RESIDENT, ANY INTEREST (NOT BEING INTEREST ON SECUR ITIES) OR ANY OTHER SUM (NOT BEING DIVIDEND) CHARGEABLE UNDER THE PROVI SIONS OF THE I.T. ACT, TO DEDUCT INCOME TAX AT THE RATES IN FORCE UNL ESS HE IS LIABLE TO PAY INCOME TAX THEREON AS AN AGENT. PAYMENT TO NON-RESI DENTS BY WAY OF ROYALTY AND PAYMENT FOR TECHNICAL SERVICES RENDERED IN INDIA ARE COMMON EXAMPLES OF SUMS CHARGEABLE UNDER THE PROVIS IONS OF THE I.T. 40 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION ACT TO WHICH THE AFORESTATED REQUIREMENT OF TAX DED UCTION AT SOURCE APPLIES. 7. THE TAX SO COLLECTED AND DEDUCTED IS REQUIRED TO BE PAID TO THE CREDIT OF CENTRAL GOVERNMENT IN TERMS OF SECTION 200 OF TH E I.T. ACT READ WITH RULE 30 OF THE I.T. RULES 1962. FAILURE TO DEDUCT T AX OR FAILURE TO PAY TAX WOULD ALSO RENDER A PERSON LIABLE TO PENALTY UN DER SECTION 201 READ WITH SECTION 221 OF THE I.T. ACT. IN ADDITION, HE WOULD ALSO BE LIABLE UNDER SECTION 201(1A) TO PAY SIMPLE INTEREST AT 12 PER CENT PER ANNUM ON THE AMOUNT OF SUCH TAX FROM THE DATE ON WH ICH SUCH TAX WAS DEDUCTIBLE TO THE DATE ON WHICH SUCH TAX IS ACTUALL Y PAID. 8. THE MOST IMPORTANT EXPRESSION IN SECTION 195(1) CONSISTS OF THE WORDS 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT'. A PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON-RESIDENT IS NOT LIABLE TO DEDUCT TAX IF SUCH SUM IS NOT CHARGEABLE TO TAX UNDER THE I.T. AC T. FOR INSTANCE, WHERE THERE IS NO OBLIGATION ON THE PART OF THE PAY ER AND NO RIGHT TO RECEIVE THE SUM BY THE RECIPIENT AND THAT THE PAYME NT DOES NOT ARISE OUT OF ANY CONTRACT OR OBLIGATION BETWEEN THE PAYER AND THE RECIPIENT BUT IS MADE VOLUNTARILY, SUCH PAYMENTS CANNOT BE RE GARDED AS INCOME UNDER THE I.T. ACT. 9. IT MAY BE NOTED THAT SECTION 195 CONTEMPLATES NO T MERELY AMOUNTS, THE WHOLE OF WHICH ARE PURE INCOME PAYMENTS, IT ALS O COVERS COMPOSITE PAYMENTS WHICH HAS AN ELEMENT OF INCOME EMBEDDED OR INCORPORATED IN THEM. THUS, WHERE AN AMOUNT IS PAYABLE TO A NON- RESIDENT, THE PAYER IS UNDER AN OBLIGATION TO DEDUCT TAS IN RESPE CT OF SUCH COMPOSITE PAYMENTS. THE OBLIGATION TO DEDUCT TAS IS , HOWEVER, LIMITED TO THE APPROPRIATE PROPORTION OF INCOME CHARGEABLE UNDER THE ACT FORMING PART OF THE GROSS SUM OF MONEY PAYABLE TO T HE NON-RESIDENT. THIS OBLIGATION BEING LIMITED TO THE APPROPRIATE PR OPORTION OF INCOME FLOWS FROM THE WORDS USED IN SECTION 195(1), NAMELY , 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT'. IT IS FOR THIS RE ASON THAT VIDE CIRCULAR NO. 728 DATED OCTOBER 30, 1995 THE CBDT HAS CLARIFI ED THAT THE TAX DEDUCTOR CAN TAKE INTO CONSIDERATION THE EFFECT OF DTAA IN RESPECT OF PAYMENT OF ROYALTIES AND TECHNICAL FEES WHILE DEDUC TING TAS. IT MAY ALSO BE NOTED THAT SECTION 195(1) IS IN IDENTICAL T ERMS WITH SECTION 18(3B) OF THE 1922 ACT. ** ** ** 11. WHILE DECIDING THE SCOPE OF SECTION 195(2) IT I S IMPORTANT TO NOTE THAT THE TAX WHICH IS REQUIRED TO BE DEDUCTED AT SO URCE IS DEDUCTIBLE ONLY OUT OF THE CHARGEABLE SUM. THIS IS THE UNDERLY ING PRINCIPLE OF SECTION 195. HENCE, APART FROM SECTION 9(1), SECTIO NS 4, 5, 9, 90, 91 AS WELL AS THE PROVISIONS OF DTAA ARE ALSO RELEVANT , WHILE APPLYING TAX DEDUCTION AT SOURCE PROVISIONS. 12. REFERENCE TO ITO(TDS) UNDER SECTION 195(2) OR 1 95(3) EITHER BY THE NON-RESIDENT OR BY THE RESIDENT PAYER IS TO AVO ID ANY FUTURE HASSLES FOR BOTH RESIDENT AS WELL AS NON-RESIDENT. IN OUR V IEW, SECTIONS 195(2) AND 195(3) ARE SAFEGUARDS. THE SAID PROVISIONS ARE OF PRACTICAL IMPORTANCE. THIS REASONING OF OURS IS BASED ON THE DECISION OF THIS COURT IN TRANSMISSION CORPORATION (SUPRA) IN WHICH THIS COURT HAS OBSERVED THAT THE PROVISION OF SECTION 195(2) IS A SAFEGUARD. FROM THIS IT FOLLOWS THAT WHERE A PERSON RESPONSIBLE FOR DEDU CTION IS FAIRLY CERTAIN 41 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION THEN HE CAN MAKE HIS OWN DETERMINATION AS TO WHETHE R THE TAX WAS DEDUCTIBLE AT SOURCE AND, IF SO, WHAT SHOULD BE THE AMOUNT THEREOF. SUBMISSIONS AND FINDINGS THEREON 13 IF THE CONTENTION OF THE DEPARTMENT THAT THE MOM ENT THERE IS REMITTANCE THE OBLIGATION TO DEDUCT TAS ARISES IS T O BE ACCEPTED THEN WE ARE OBLITERATING THE WORDS 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IN SECTION 195(1). THE SAID EXPRESSION IN SECT ION 195(1) SHOWS THAT THE REMITTANCE HAS GOT TO BE OF A TRADING RECE IPT, THE WHOLE OR PART OF WHICH IS LIABLE TO TAX IN INDIA. THE PAYER IS BO UND TO DEDUCT TAS ONLY IF THE TAX IS ASSESSABLE IN INDIA. IF TAX IS NOT SO ASSESSABLE, THERE IS NO QUESTION OF TAS BEING DEDUCTED. [SEE : VIJAY SHIP B REAKING CORPORATION AND OTHERS V. CIT 314 ITR 309] 14. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. SECTIO N 195 FALLS IN CHAPTER XVII WHICH DEALS WITH COLLECTION AND RECOVE RY. CHAPTER XVII-B DEALS WITH DEDUCTION AT SOURCE BY THE PAYER. ON ANA LYSIS OF VARIOUS PROVISIONS OF CHAPTER XVII ONE FINDS USE OF DIFFERE NT EXPRESSIONS, HOWEVER, THE EXPRESSION 'SUM CHARGEABLE UNDER THE P ROVISIONS OF THE ACT' IS USED ONLY IN SECTION 195. FOR EXAMPLE, SECT ION 194C CASTS AN OBLIGATION TO DEDUCT TAS IN RESPECT OF 'ANY SUM PAI D TO ANY RESIDENT'. SIMILARLY, SECTIONS 194EE AND 194F INTER ALIA PROVI DE FOR DEDUCTION OF TAX IN RESPECT OF 'ANY AMOUNT' REFERRED TO IN THE S PECIFIED PROVISIONS. IN NONE OF THE PROVISIONS WE FIND THE EXPRESSION 'S UM CHARGEABLE UNDER THE PROVISIONS OF THE ACT', WHICH AS STATED A BOVE, IS AN EXPRESSION USED ONLY IN SECTION 195(1). THEREFORE, THIS COURT IS REQUIRED TO GIVE MEANING AND EFFECT TO THE SAID EXP RESSION. IT FOLLOWS, THEREFORE, THAT THE OBLIGATION TO DEDUCT TAS ARISES ONLY WHEN THERE IS A SUM CHARGEABLE UNDER THE ACT. 15. SECTION 195(2) IS NOT MERELY A PROVISION TO PRO VIDE INFORMATION TO THE ITO(TDS). IT IS A PROVISION REQUIRING TAX TO BE DEDUCTED AT SOURCE TO BE PAID TO THE REVENUE BY THE PAYER WHO MAKES PA YMENT TO A NON- RESIDENT. THEREFORE, SECTION 195 HAS TO BE READ IN CONFORMITY WITH THE CHARGING PROVISIONS, I.E., SECTIONS 4, 5 AND 9. THI S REASONING FLOWS FROM THE WORDS 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IN SECTION 195(1). 16. THE FACT THAT THE REVENUE HAS NOT OBTAINED ANY INFORMATION PER SE CANNOT BE A GROUND TO CONSTRUE SECTION 195 WIDELY S O AS TO REQUIRE DEDUCTION OF TAS EVEN IN A CASE WHERE AN AMOUNT PAI D IS NOT CHARGEABLE TO TAX IN INDIA AT ALL. WE CANNOT READ S ECTION 195, AS SUGGESTED BY THE DEPARTMENT, NAMELY, THAT THE MOMEN T THERE IS REMITTANCE THE OBLIGATION TO DEDUCT TAS ARISES. IF WE WERE TO ACCEPT SUCH A CONTENTION IT WOULD MEAN THAT ON MERE PAYMEN T INCOME WOULD BE SAID TO ARISE OR ACCRUE IN INDIA. THEREFORE, AS STATED EARLIER, IF THE CONTENTION OF THE DEPARTMENT WAS ACCEPTED IT WOULD MEAN OBLITERATION OF THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISI ONS OF THE ACT' FROM SECTION 195(1). WHILE INTERPRETING A SECTION O NE HAS TO GIVE WEIGHTAGE TO EVERY WORD USED IN THAT SECTION. WHILE INTERPRETING THE PROVISIONS OF THE INCOME TAX ACT ONE CANNOT READ TH E CHARGING SECTIONS OF THAT ACT DE HORS THE MACHINERY SECTIONS . THE ACT IS TO BE READ AS AN INTEGRATED CODE. 17. SECTION 195 APPEARS IN CHAPTER XVII WHICH DEALS WITH COLLECTION AND RECOVERY. AS HELD IN THE CASE OF C.I.T. V. ELI LILLY & CO. (INDIA) (P.) 42 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION LTD. [312 ITR 225] THE PROVISIONS FOR DEDUCTION OF TAS WHICH IS IN CHAPTER XVII DEALING WITH COLLECTION OF TAXES AND T HE CHARGING PROVISIONS OF THE I.T. ACT FORM ONE SINGLE INTEGRAL , INSEPARABLE CODE AND, THEREFORE, THE PROVISIONS RELATING TO TDS APPL IES ONLY TO THOSE SUMS WHICH ARE 'CHARGEABLE TO TAX' UNDER THE I.T. A CT. IT IS TRUE THAT THE JUDGMENT IN ELI LILLY (SUPRA) WAS CONFINED TO S ECTION 192 OF THE I.T. ACT. HOWEVER, THERE IS SOME SIMILARITY BETWEEN THE TWO. IF ONE LOOKS AT SECTION 192 ONE FINDS THAT IT IMPOSES STATUTORY OBL IGATION ON THE PAYER TO DEDUCT TAS WHEN HE PAYS ANY INCOME 'CHARGEABLE U NDER THE HEAD SALARIES'. SIMILARLY, SECTION 195 IMPOSES A STATUTO RY OBLIGATION ON ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT ANY SUM 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT', WHICH EXPRESSION, AS STATED ABOVE, DO NOT FIND PLACE IN OTHER SECTIONS OF CHAPTER XVII. I T IS IN THIS SENSE THAT WE HOLD THAT THE I.T. ACT CONSTITUTES ONE SINGLE IN TEGRAL INSEPARABLE CODE. HENCE, THE PROVISIONS RELATING TO TDS APPLIES ONLY TO THOSE SUMS WHICH ARE CHARGEABLE TO TAX UNDER THE I.T. ACT. 18. IF THE CONTENTION OF THE DEPARTMENT THAT ANY PE RSON MAKING PAYMENT TO A NON-RESIDENT IS NECESSARILY REQUIRED T O DEDUCT TAS THEN THE CONSEQUENCE WOULD BE THAT THE DEPARTMENT WOULD BE ENTITLED TO APPROPRIATE THE MONEYS DEPOSITED BY THE PAYER EVEN IF THE SUM PAID IS NOT CHARGEABLE TO TAX BECAUSE THERE IS NO PROVISION IN THE I.T. ACT BY WHICH A PAYER CAN OBTAIN REFUND. SECTION 237 READ W ITH SECTION 199 IMPLIES THAT ONLY THE RECIPIENT OF THE SUM, I.E., T HE PAYEE COULD SEEK A REFUND. IT MUST THEREFORE FOLLOW, IF THE DEPARTMENT IS RIGHT, THAT THE LAW REQUIRES TAX TO BE DEDUCTED ON ALL PAYMENTS. TH E PAYER, THEREFORE, HAS TO DEDUCT AND PAY TAX, EVEN IF THE SO-CALLED DE DUCTION COMES OUT OF HIS OWN POCKET AND HE HAS NO REMEDY WHATSOEVER, EVEN WHERE THE SUM PAID BY HIM IS NOT A SUM CHARGEABLE UNDER THE A CT. THE INTERPRETATION OF THE DEPARTMENT, THEREFORE, NOT ON LY REQUIRES THE WORDS 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT' TO BE OMITTED, IT ALSO LEADS TO AN ABSURD CONSEQUENCE. THE INTERPRETA TION PLACED BY THE DEPARTMENT WOULD RESULT IN A SITUATION WHERE EVEN W HEN THE INCOME HAS NO TERRITORIAL NEXUS WITH INDIA OR IS NOT CHARG EABLE IN INDIA, THE GOVERNMENT WOULD NONETHELESS COLLECT TAX. IN OUR VI EW, SECTION 195(2) PROVIDES A REMEDY BY WHICH A PERSON MAY SEEK A DETE RMINATION OF THE 'APPROPRIATE PROPORTION OF SUCH SUM SO CHARGEABLE' WHERE A PROPORTION OF THE SUM SO CHARGEABLE IS LIABLE TO TAX. 19. THE ENTIRE BASIS OF THE DEPARTMENT'S CONTENTION IS BASED ON ADMINISTRATIVE CONVENIENCE IN SUPPORT OF ITS INTERP RETATION. ACCORDING TO THE DEPARTMENT HUGE SEEPAGE OF REVENUE CAN TAKE PLACE IF PERSONS MAKING PAYMENTS TO NON-RESIDENTS ARE FREE TO DEDUCT TAS OR NOT TO DEDUCT TAS. IT IS THE CASE OF THE DEPARTMENT THAT S ECTION 195(2), AS INTERPRETED BY THE HIGH COURT, WOULD PLUG THE LOOPH OLE AS THE SAID INTERPRETATION REQUIRES THE PAYER TO MAKE A DECLARA TION BEFORE THE ITO(TDS) OF PAYMENTS MADE TO NON-RESIDENTS. IN OTHE R WORDS, ACCORDING TO THE DEPARTMENT SECTION 195(2) IS A PRO VISION BY WHICH PAYER IS REQUIRED TO INFORM THE DEPARTMENT OF THE R EMITTANCES HE MAKES TO THE NONRESIDENTS BY WHICH THE DEPARTMENT I S ABLE TO KEEP TRACK OF THE REMITTANCES BEING MADE TO NON-RESIDENT S OUTSIDE INDIA. 20. WE FIND NO MERIT IN THESE CONTENTIONS. AS STATE D HEREINABOVE, SECTION 195(1) USES THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT.' WE NEED TO GIVE WEIGHTAGE T O THOSE WORDS. FURTHER, SECTION 195 USES THE WORD `PAYER' AND NOT THE WORD 43 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION 'ASSESSEE'. THE PAYER IS NOT AN ASSESSEE. THE PAYER BECOMES AN ASSESSEE-IN-DEFAULT ONLY WHEN HE FAILS TO FULFILL T HE STATUTORY OBLIGATION UNDER SECTION 195(1). IF THE PAYMENT DOES NOT CONTA IN THE ELEMENT OF INCOME THE PAYER CANNOT BE MADE LIABLE. HE CANNOT B E DECLARED TO BE AN ASSESSEE-IN-DEFAULT. 21. THE ABOVEMENTIONED CONTENTION OF THE DEPARTMENT IS BASED ON AN APPREHENSION WHICH IS ILL FOUNDED. THE PAYER IS ALS O AN ASSESSEE UNDER THE ORDINARY PROVISIONS OF THE I.T. ACT. WHEN THE P AYER REMITS AN AMOUNT TO A NON-RESIDENT OUT OF INDIA HE CLAIMS DED UCTION OR ALLOWANCES UNDER THE INCOME TAX ACT FOR THE SAID SU M AS AN 'EXPENDITURE'. UNDER SECTION 40(A)(I), INSERTED VID E FINANCE ACT, 1988 W.E.F. 1.4.89, PAYMENT IN RESPECT OF ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUMS CHARGEABLE UNDER THE INCOME TAX ACT W OULD NOT GET THE BENEFIT OF DEDUCTION IF THE ASSESSEE FAILS TO DEDUC T TAS IN RESPECT OF PAYMENTS OUTSIDE INDIA WHICH ARE CHARGEABLE UNDER T HE I.T. ACT. THIS PROVISION ENSURES EFFECTIVE COMPLIANCE OF SECTION 1 95 OF THE I.T. ACT RELATING TO TAX DEDUCTION AT SOURCE IN RESPECT OF P AYMENTS OUTSIDE INDIA IN RESPECT OF ROYALTIES, FEES OR OTHER SUMS C HARGEABLE UNDER THE I.T. ACT. IN A GIVEN CASE WHERE THE PAYER IS AN ASS ESSEE HE WILL DEFINITELY CLAIM DEDUCTION UNDER THE I.T. ACT FOR S UCH REMITTANCE AND ON INQUIRY IF THE AO FINDS THAT THE SUMS REMITTED OUTS IDE INDIA COMES WITHIN THE DEFINITION OF ROYALTY OR FEES FOR TECHNI CAL SERVICE OR OTHER SUMS CHARGEABLE UNDER THE I.T. ACT THEN IT WOULD BE OPEN TO THE AO TO DISALLOW SUCH CLAIM FOR DEDUCTION. SIMILARLY, VIDE FINANCE ACT, 2008, W.E.F. 1.4.2008 SUB-SECTION (6) HAS BEEN INSERTED I N SECTION 195 WHICH REQUIRES THE PAYER TO FURNISH INFORMATION RELATING TO PAYMENT OF ANY SUM IN SUCH FORM AND MANNER AS MAY BE PRESCRIBED BY THE BOARD. THIS PROVISION IS BROUGHT INTO FORCE ONLY FROM 1.4.2008. IT WILL NOT APPLY FOR THE PERIOD WITH WHICH WE ARE CONCERNED IN THESE CAS ES BEFORE US. THEREFORE, IN OUR VIEW, THERE ARE ADEQUATE SAFEGUAR DS IN THE ACT WHICH WOULD PREVENT REVENUE LEAKAGE.' 53. IN THE VIEW THAT WE HAVE TAKEN, IT IS NOT NECESSAR Y TO REFER THE JUDGMENT OF A DIVISION BENCH OF THE DELHI HIGH IN T HE CASE OF EMIRATES SHIPPING LINE, FZE V. ASSISTANT DIRECTOR OF INCOME TAX REPORTED IN [2012] 349 ITR 493. SUFFICE IT TO NOTE THAT THE VIE W TAKEN BY THE DIVISION BENCH AND PARTICULARLY IN PARAS 17 AND 18 OF THIS JUDGMENT ACCORDS WITH THE CONCLUSION REACHED BY US. 54. THE DIFFICULTY IS PRESENTED ONLY WHEN PROVISIONS A RE NOT READ TOGETHER AND HARMONIOUSLY SO ALSO WITHOUT BEARING I N MIND THE SETTING AND PLACEMENT THEREOF IN THE CHAPTERS. THESE CHAPTE RS OF THE INCOME TAX ACT COVER SEVERAL ASPECTS IN RELATION TO IMPOSI TION, LEVY, ASSESSMENT, COLLECTION AND RECOVERY OF TAX ON THE I NCOME SPECIFIED ABOVE. TO THE EXTENT CONTRARY TO ABOVE, WE OVERRULE THE VIEW IN ORIENT GOA'S CASE (SUPRA). THE QUESTION REFERRED IS ANSWER ED ACCORDINGLY. SINCE THE QUESTION ABOVE IS REFERRED TO US, HAVING ANSWERED IT, LET THE APPEALS BE NOW LISTED FOR HEARING BEFORE APPROPRIAT E DIVISION BENCH.' 2.3. IF THE CONCLUSION DRAWN BY FULL BENCH OF THE HON'BLE JURISDICTIONAL HIGH COURT IS ANALYZED IT CO NCLUDED THAT SECTION 40 DEALS WITH AMOUNTS NOT DEDUCTIBLE. THE 44 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION AMOUNTS WHICH CANNOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION IN THE CASE OF AN ASSESSEE A RE SET OUT IN CLAUSE (A) AND SUB-CLAUSE (I) REFERS TO ANY INTEREST, ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM C HARGEABLE UNDER THE INCOME-TAX ACT WHICH IS PAYABLE OUTSIDE I NDIA OR IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY ON WHICH TAX IS DEDUCTIBLE AT SOURC E UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED O R AFTER DEDUCTION HAS NOT BEEN PAID. SECTION 172 HAS APPLICATION TO SHIPPING BUSINESS OF NON-RESIDENTS A ND THE PROVISIONS OF THAT SECTION HAVE APPLICATION NOTWITH STANDING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THE A CT FOR THE PURPOSE OF LEVY AND RECOVERY OF TAX IN THE CASE OF ANY SHIP, BELONGING TO OR CHARTERED BY A NON-RESIDENT WHICH C ARRIES PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPED AT A P ORT IN INDIA THE SHIPPING BUSINESS OF NON-RESIDENTS IS AN ASPECT DEALT WITH BY SECTION 172. WHILE CONSIDERING THE LE VY AND RECOVERY OF TAX IN CASE OF SUCH BUSINESS WHICH IS C ARRIED ON WITH THE AID OF ANY SHIP BELONGING TO OR CHARTERED BY A NON- RESIDENT WHICH CARRIES PASSENGERS ETC. SHIPPED AT A PORT IN INDIA, THEN, IT IS TO COMPUTE THE TAX AND RECOVER I T IN RELATION TO SUCH BUSINESS OF A NON-RESIDENT THAT SE CTION 172 IS INCORPORATED IN THE STATUTE BOOK. THE TERM 'NON - RESIDENT' MEANS A PERSON WHO IS NOT A RESIDENT AS P ER SECTION 2(30) OF THE INCOME TAX ACT AND FOR THE PUR POSES OF SECTIONS 92, 93 AND 168, INCLUDES A PERSON WHO IS N OT 45 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION ORDINARILY A RESIDENT WITHIN THE MEANING OF CLAUSE (6)OF SECTION 6. THE TERM 'PERSON' INCLUDES AN INDIVIDUAL , A HUF, A COMPANY, FIRM AND EVERY ARTIFICIAL JURIDICAL PERS ON NOT FALLING WITHIN ANY OF THE PRECEDING SUB-CLAUSES OF CLAUSE (31) OF SECTION 2. BY SECTION 2(23A), A FOREIGN COM PANY IS DEFINED TO MEAN A COMPANY WHICH IS NOT A DOMESTIC COMPANY. HENCE, ANY PERSON RESPONSIBLE FOR PAYING T O A NON-RESIDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST OR ANY OTHER SUM CHARGEABLE U NDER THE PROVISIONS OF THIS ACT NOT BEING INCOME CHARGEA BLE UNDER THE HEAD 'SALARIES', WOULD HAVE TO DEDUCT THE TAX THEREON AT THE RATES IN FORCE. 2.4. IN CASE OF C.I.T. V. ELI LILLY & CO. (INDIA) IT HELD THAT UNDER SECTION 40(A)(I), INSERTED VIDE FINANCE ACT, 1988 W.E.F. 1.4.89, PAYMENT IN RESPECT OF ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUMS CHARGEABLE UNDER T HE INCOME TAX ACT WOULD NOT GET THE BENEFIT OF DEDUCTI ON IF THE ASSESSEE FAILS TO DEDUCT TAS IN RESPECT OF PAYMENTS OUTSIDE INDIA WHICH ARE CHARGEABLE UNDER THE I.T. ACT. THIS PROVISION ENSURES EFFECTIVE COMPLIANCE OF SECTION 1 95 OF THE I.T. ACT RELATING TO TAX DEDUCTION AT SOURCE IN RES PECT OF PAYMENTS OUTSIDE INDIA IN RESPECT OF ROYALTIES, FEE S OR OTHER SUMS CHARGEABLE UNDER THE I.T. ACT. IN A GIVEN CASE WHERE THE PAYER IS AN ASSESSEE HE WILL DEFINITELY CLAIM D EDUCTION UNDER THE I.T. ACT FOR SUCH REMITTANCE AND ON INQUI RY IF THE AO FINDS THAT THE SUMS REMITTED OUTSIDE INDIA COMES WITHIN THE DEFINITION OF ROYALTY OR FEES FOR TECHNICAL SER VICE OR OTHER 46 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION SUMS CHARGEABLE UNDER THE I.T. ACT THEN IT WOULD BE OPEN TO THE AO TO DISALLOW SUCH CLAIM FOR DEDUCTION. SIM ILARLY, VIDE FINANCE ACT, 2008, W.E.F. 1.4.2008 SUB-SECTION (6) HAS BEEN INSERTED IN SECTION 195 WHICH REQUIRES THE PAY ER TO FURNISH INFORMATION RELATING TO PAYMENT OF ANY SUM IN SUCH FORM AND MANNER AS MAY BE PRESCRIBED BY THE BOARD. THIS PROVISION IS BROUGHT INTO FORCE ONLY FROM 1.4.2008. IT WILL NOT APPLY FOR THE PERIOD WITH WHICH WE ARE CONCERNE D IN THESE CASES BEFORE US. THEREFORE, IN HIGH COURT VIE W, THERE ARE ADEQUATE SAFEGUARDS IN THE ACT WHICH WOUL D PREVENT REVENUE LEAKAGE.' 2.5. DIFFICULTY IS PRESENTED ONLY WHEN PROVISIONS ARE NOT READ TOGETHER AND HARMONIOUSLY SO ALSO WITHOUT BEARING IN MIND THE SETTING AND PLACEMENT THEREOF IN THE CH APTERS. THESE CHAPTERS OF THE INCOME TAX ACT COVER SEVERAL ASPECTS IN RELATION TO IMPOSITION, LEVY, ASSESSMENT, COLLEC TION AND RECOVERY OF TAX ON THE INCOME SPECIFIED ABOVE. FIN ALLY, IT WAS CONCLUDED THAT WHILE CONSIDERING LEVY AND RECOV ERY OF TAX IN CASE OF BUSINESS CARRIED ON WITH AID OF ANY SHIP BELONGING TO OR CHARTERED BY A NON-RESIDENT WHICH C ARRIES PASSENGERS ETC. SHIPPED AT A PORT IN INDIA, THEN, T AX MUST BE COMPUTED AND RECOVERED IN RELATION TO SUCH BUSIN ESS OF NON-RESIDENT AS PER SECTION 172 OF THE ACT. THUS, W E FIND MERIT IN THE CONTENTION OF THE ASSESSEE, THEREFORE, RESPECTFULLY FOLLOWING THE AFORESAID DECISION, DECI DE THIS GROUND IN FAVOUR OF THE ASSESSEE. 47 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION 3. THE NEXT GROUND RAISED BY THE ASSESSEE PERTAINS TO HOLDING THAT COMMISSION OF RS.87,30,042/- PAID T O OVERSEAS AGENT WAS LIABLE FOR DEDUCTION OF TAX AT S OURCE U/S 195 OF THE ACT, THEREFORE, LIABLE FOR DISALLOWANCE U/S 40(A)(IA) OF THE ACT. 3.1. AFTER HEARING THE RIVAL SUBMISSIONS, WE FIND THAT THE TRIBUNAL ON THIS ISSUE (AT PAGE-10) OF THE AFOR ESAID ORDER DATED 20/11/2015 HELD AS UNDER:- 4.2 COMING, NEXT, TO THE EXPENDITURE ON THE SO CALL ED COMMISSION. THE LAW IN THE MATTER CAN BE SAID TO BE SETTLED, AND A PAYMENT TO A NON- RESIDENT WOULD NOT BE SUBJECT TO TAX DEDUCTION AT S OURCE (TDS) AND, CORRESPONDINGLY, DISALLOWANCE U/S.40(A)(I), UNLESS THE CORRESPONDING RECEIPT BEARS AN ELEMENT OF INCOME, TAXABLE IN INDI A, I.E., UNDER THE ACT. REFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISI ON IN G. E. INDIA TECHNOLOGY CENTRE (P.) LTD. (SUPRA). AS SUCH, THE R ECEIPT SHALL NOT BECOME TAXABLE IN INDIA MERELY BECAUSE THE ASSESSEE DID NOT APPLY FOR OR SEEK A SANCTION OF THE REVENUE TO REMIT THE PAYM ENT TO A NON- RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE, AS ENV ISAGED U/S. 195. TRUE, S. 195(2) OPERATES AS A SAFEGUARD, BUT WOULD NOT BY ITSELF LEAD TO THE SATISFACTION OF THE CONDITION OF CHARGEABLE UNDER THE PROVISIONS OF THE ACT SPECIFIED IN S. 195(1). IT IS ONLY ON THIS CON DITION BEING MET THAT THE PROVISION OF S. 195, FALLING UNDER CHAPTER XVII, SH ALL COME INTO PLAY. THIS, THEN, PROVIDES THE LEGAL BASIS TO RESOLVE THE ISSUE BEFORE US. THE NEXT QUESTION THAT CONFRONTS US IS IF ANY PART OF COMMISSION INCOME CAN BE SAID TO ACCRUE OR ARISE OR DEEMED TO ACCRUE OR ARISE IN INDIA. TOWARD THIS, THE ASSESSEES CONTENTION IS THAT NO S ERVICES ARE RENDERED IN INDIA (THE TAXABLE TERRITORY). IT IS ON THIS BAS IS, AS A READING OF ITS DECISION IN TOSHOKU LTD. (SUPRA) WOULD REVEAL, THAT THE HONBLE APEX COURT HELD THAT THE NON-RESIDENT SELLING AGENTS HAV ING ACTED OUTSIDE INDIA, THEIR COMMISSION EARNED CANNOT BE DEEMED TO HAVE EITHER ACCRUED OR ARISEN IN INDIA. WHERE THE SERVICES ARE RENDERED IN INDIA (TAXABLE TERRITORY), THE INCOME THEREFROM, TO THAT EXTENT, WOULD SURELY ACCRUE OR ARISE IN INDIA, SO THAT ONE MAY NOT BE RE QUIRED TO EVEN TRAVEL TO THE DEEMING PROVISION OF SECTION 9, WHICH IN A WAY SEEKS TO EXTEND AND TO DEFINITION THE SCOPE OF ACCRUAL BY AND THROUGH T HE CONCEPT OF BUSINESS CONNECTION. AS EXPLAINED IN CIT VS. R. D . AGGARWAL & CO. [1965] 56 ITR 20 (SC), WHICH STANDS REFERRED TO IN TOSHOKU LTD. (SUPRA), AND CONTINUES TO GOVERN THE FIELD, BUSINESS CONNECT ION INVOLVES THE RELATIONSHIP BETWEEN THE BUSINESS CARRIED ON BY A N ON-RESIDENT (OUTSIDE TAXABLE TERRITORIES), WHICH YIELDS PROFITS OR GAINS , AND SOME ACTIVITY IN THE TAXABLE TERRITORIES WHICH CONTRIBUTES DIRECTLY OR I NDIRECTLY TO THE EARNING OF THOSE PROFITS AND GAINS. IT PREDICATES AN ELEMENT O F CONTINUITY, AND POSTULATES A REAL AND INTIMATE RELATION BETWEEN THE TRADING ACTIVITY 48 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION CARRIED ON OUTSIDE THE TAXABLE TERRITORIES AND THE TRADING ACTIVITY WITHIN THE TERRITORIES, THE RELATION BETWEEN THE TWO CONTR IBUTING TO THE EARNING OF INCOME BY THE NON-RESIDENT IN HIS TRADING ACTIVITY THE AGENTS IN THE PRESENT CASE. THE MATTER IS, THUS, PRINCIPALLY AND PRIMARILY FACTUAL. THIS IS ALSO WHAT THE BOARD CIRCULAR 23 (SUPRA) EXPLAINS , I.E., WHETHER THE NON-RESIDENT HAS A BUSINESS CONNECTION IN INDIA, FR OM WHICH INCOME, PROFITS OR GAINS CAN BE SAID TO ARISE WITHIN THE ME ANING OF SECTION 9 HAS TO BE DETERMINED IN THE FACTS OF EACH CASE. THIS IS ALSO WHAT IT STATES IN SUBSTANCE, WHICH WILL NOT GET WHITTLED DOWN WHEN IN THE LATTER PART, BY WAY OF AN ILLUSTRATION, IT STATES THAT FOR A FOREIG N AGENT OPERATING IN HIS OWN COUNTRY, NO PART OF HIS INCOME CAN BE SAID TO A RISE IN INDIA A PROPOSITION ON WHICH THERE COULD BE NO DISPUTE IN P RINCIPLE, AND WHICH IS WHAT THE HONBLE APEX COURT HAS ENDORSED IN TOSHOKU LTD. (SUPRA). THIS CANNOT, AND BY NO MEANS, IS MEANT TO OR COULD SUBST ITUTE A FACTUAL DETERMINATION OF WHETHER THERE IS ANY BUSINESS CONN ECTION WHICH WOULD ONLY BE UPON EXAMINING THE SCOPE AND ACTIVITIES IN THE TAXABLE TERRITORY (INDIA) AND THE RELATION WITH THAT CARRIED IN THE T ERRITORY OUTSIDE INDIA FROM WHICH INCOME IS EARNED. A CIRCULAR CANNOT, AND IT W OULD BE PRESUMPTUOUS TO THINK OTHERWISE, DECIDE WHETHER THE RE IS IN THE FACTS AND CIRCUMSTANCES OF THE CASE, A BUSINESS CONNECTIO N, I.E., A RELATION BETWEEN THE TRADING ACTIVITY IN THE TAXABLE AND THE NON-TAXABLE TERRITORIES, AND ANY INCOME ARISES TO THE NON-RESIDENTS ON ACCOU NT OF THAT RELATIONSHIP, AS THE LAW IS, AND STANDS EXPLAINED. THAT IS, THE SAID CIRCULAR IS IN CONFORMITY WITH THE LAW. THE SAME CA NNOT EVEN OTHERWISE OVERRULE THE LAW AS EXPLAINED BY THE HON'BLE JURISD ICTIONAL HIGH COURT IN ORIENT (GOA) (P.) LTD.(SUPRA) WITH REFERENCE TO THE DECISION IN CST VS. INDRA INDUSTRIES [2001] 248 ITR 338 (SC), AND WHICH IS EVEN OTHERWISE TRITE LAW (REFER: COMMISSIONER OF CENTRAL EXCISE VS . RATAN MELTING & WIRE INDUSTRIES (IN CIVIL APPEAL NO. 4022 OF 1999 DATED 14.10.2008). THE SUBSEQUENT WITHDRAWAL OF THE SAID CIRCULAR IS THUS, UNDER THE CIRCUMSTANCES, OF LITTLE ASSISTANCE TO THE ASSESSEE . IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE CLAI MS LIKEWISE, I.E., OF NO SERVICES HAVING BEEN RENDERED IN INDIA (TAXABLE TER RITORY). THERE HAS BEEN, HOWEVER, NO EXAMINATION OF THE ACTIVITIES CAR RIED OUT BY THE NON- RESIDENT AGENTS, EVEN AS THE REVENUE CLAIMS THE SAM E TO INVOLVE MANAGERIAL AND CONSULTANCY SERVICES, SO THAT IN NAT URE AND BY DEFINITION THE SAME WOULD BE FEE FOR TECHNICAL SERVICES, COVER ED BY SECTION 9(1)(VII). THE LD. AR, ON BEING QUESTIONED IN THE M ATTER, I.E., AS TO THE NATURE AND SCOPE OF THE SERVICES RENDERED BY SELLI NG OR, AS THE CASE MAY BE, CONSULTING AGENTS, CONCEDED TO THE SAME, I.E., A COMPLETE ABSENCE OF ANY EXAMINATION IN THE MATTER. WE CONSID ER BOTH THE ASSESSEE WHO ONLY STATES OF THERE BEING NO WRITTE N AGREEMENTS BETWEEN THE ASSESSEE AND THE AGENTS, AS WELL AS THE REVENUE, TO BE RESPONSIBLE FOR THIS. THE LAW COULD NOT BE APPLIED WITHOUT EXAMINING AND DETERMINING THE FACTS. THE LAW PROVIDES THE GUIDELI NES, THE FRAME WORK, APPLYING WHICH TO THE FACTS AS FOUND, THE ISSUES AS ARISING ARE TO BE DECIDED/ADJUDICATED. THAT IS, THE LAW COULD ONLY BE APPLIED ON THE TERRA FIRMA OF THE FACTS, WHICH FORM THE BUILDING BLOCK O F ANY CASE. NOT SO DOING WOULD ONLY AMOUNT TO MATCHING THE COLOUR OF O NE CASE WITH THAT OF ANOTHER, SOMETHING WHICH COULD NOT BE COUNTENANCED, AND DISAPPROVED BY THE APEX COURT FROM TIME AND AGAIN. WHY, EVEN IN THE CASE OF G. E. INDIA TECHNOLOGY CENTRE (P.) LTD. (SUPRA), THE HON BLE APEX COURT, AFTER 49 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION CLARIFYING THE LAW, REMITTED THE MATTER BACK TO THE HONBLE HIGH COURT TO CONSIDER ON MERITS THE QUESTION AS TO WHETHER IN TH E FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS JUSTIFIE D IN HOLDING THAT THE AMOUNTS PAID TO FOREIGN SUPPLIERS WAS NOT ROYALTY AND THAT IT DID NOT GIVE RISE TO INCOME TAXABLE IN INDIA, EXCLUDING THE LIAB ILITY TOWARD DEDUCTION OF TAX AT SOURCE. COMING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE, AS GIVEN TO UNDERSTAND, IS A MANUFACTURER OF AUTOMOBIL E PARTS IN INDIA. THE VEHICLES PLYING ON THE ROADS ABROAD ARE, AS IS THE COMMON KNOWLEDGE, VERY DIFFERENT IN DESIGN AND ENGINEERING FROM THAT IN INDIA. THE PROFILE OF THE AUTO PARTS WOULD HAVE TO MATCH AND FIT INTO THE ENGINEERING AND DESIGNING OF THE VEHICLES. HOW IS THE ASSESSEES PR ODUCT, THEN, SOLD AND MARKETED, WHICH WOULD REQUIRE PENETRATION AND ESTAB LISHMENT IN NEW MARKETS. IT IS ONLY WHEN THE ENGINEERING DETAILS, I N THE FORM OF DRAWINGS, ETC. OF THESE PARTS ARE MADE AVAILABLE TO THE ASSES SEE, THAT IT COULD MANUFACTURE THEM. THIS WOULD REQUIRE EXTENSIVE EXCH ANGE OF TECHNICAL INFORMATION AND, PERHAPS, EVEN EXPERTISE. WHY, EVEN THE RAW MATERIAL OR THE RAW MATERIAL MIX REQUIRED MAY BE DIFFERENT, INC LUDING QUA QUALITY/GRADE. IN FACT, THE PRODUCTION, AS THE FINA L STEP, WOULD ONLY BE PRECEDED BY A SERIES OF STAGES, BEGINNING WITH THE EXCHANGE OF THE TECHNICAL DETAILS, INCLUDING ON PRODUCT QUALITY, LE ADING TO THE PRODUCTION OF THE PRODUCT PROTOTYPE AND APPROVAL THEREOF, TO T HE TRIAL PRODUCTION, BEFORE THE REGULAR PRODUCTION COMMENCES AND SUPPLIE S MADE. IN OTHER WORDS, THE ASSESSEES PRODUCT IS NOT A STANDARDIZED , BUT A CUSTOMIZED ONE, WITH, RATHER, CUSTOMIZATION ITSELF BEING A LON G DRAWN PROCESS. ALL THIS, AS INDICATED BEFORE, WOULD REQUIRE INTERACTIO N OF HIGH CALIBRE BETWEEN THE CONCERNED PARTIES, WITH THE AGENTS PRES UMABLY CO- COORDINATING THE SAME THAT BEING THEIR FUNCTION. EVEN SUBSEQUENT TO THE STAGE OF THE REGULAR SUPPLIES, THERE MAY BE NOT SO INFREQUENT CHANGES AUTOMOBILES WITNESSING CHANGES IN DESIGN AND MODELS ON A REGULAR BASIS, OR ON ACCOUNT OF CHANGES IN OTHER VA RIABLES IMPACTING THE TERMS OF THE TRADE, VIZ. FLUCTUATIONS IN FOREIGN EX CHANGE MARKET; THE PRICE OF SOME IMPORTED OR INDIGENOUS MATERIAL, ETC. WHICH MAY REQUIRE RE- NEGOTIATION. THE EXCHANGE, THUS, WOULD BE ON A REGU LAR BASIS, ACROSS DIFFERENT BUYERS, EACH WITH ITS OWN SET OF REQUIREM ENTS AND ISSUES. THE ASSESSEES VIEW POINT ON EACH ASPECT OF THE MATTER, AND AT EACH STAGE, HAS TO BE PUT ACROSS TO THE BUYERS, AND VICE-VERSA, CONSTITUTING AN EFFECTIVE DIALOGUE BETWEEN THE TWO, WHICH IS THE PR IME FUNCTION OF THE AGENT AS AN INTERMEDIARY. WHY, IT MAY ALSO NECESSIT ATE VISITS BY EITHER SIDE, TO ANOTHER, BESIDES BY THE AGENT/S TO INDIA, APART FROM THE REGULAR EXCHANGE AND FLOW OF INFORMATION THROUGH OTHER MODE S OF COMMUNICATION. HOW ELSE, WE WONDER, THE BUSINESS TA KE FORM AND BE UNDERTAKEN? THE LD. AR, ON BEING QUESTIONED IN THE MATTER, I.E., AS TO THE MANNER IN WHICH THE BUSINESS IS UNDERTAKEN, PUT TING ACROSS THIS SCENARIO, WOULD FAIRLY SUBMIT THAT THE SAME IS A DI STINCT POSSIBILITY, THOUGH HE WAS NOT IN A POSITION TO SO AFFIRM OR COM MIT IN THE MATTER. THIS IS PRECISELY WHY WE STATED BOTH THE ASSESSEE AND TH E REVENUE TO BE RESPONSIBLE FOR A COMPLETE FACTUAL INDETERMINATION OF THE MATTER. MERELY STATING THAT NO SERVICES ARE RENDERED IN INDIA IS U NDER THE CIRCUMSTANCES OF LITTLE CONSEQUENCE. IT IS, AGAIN, UPON EXAMINING AND ASCERTAINING THE NATURE OF THE SERVICES THAT THE AAR IN WALLACE PHAR MACEUTICAL (P.) LTD. (SUPRA) HELD THAT THE SERVICES PROVIDED BY PENSER G ROUP, A TAX RESIDENT 50 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION OF USA, WERE NOT LIMITED TO USA AND, FURTHER, UTILI ZED IN INDIA AND, ACCORDINGLY, PAYMENTS THERETO WARRANTED DEDUCTION O F TAX AT SOURCE. THE AAR HAS, IN OUR VIEW, SOUGHT TO CORRECTLY APPLY THE LAW IN THE MATTER THE ISSUE BEING PRINCIPALLY FACTUAL. IT IS AGAIN ON ACCOUNT OF THIS THAT THE HONBLE COURT IN ELKEM TECHNOLOGY (SUPRA), UPON EXA MINING THE NATURE AND SCOPE OF THE ACTIVITIES, HELD THAT NO QUESTION OF LAW, MUCH LESS A SUBSTANTIAL QUESTION OF LAW, ARISES. IN THE CASE OF TOSHOKU LTD. (SUPRA), THE PRODUCT WAS TOBACCO, ESSENTIALLY A COMMODITY (OR A GENERIC PRODUCT), AND WHICH COULD BE SOLD AS SUCH, ADHERING TO THE SPECIFICATIONS AS MAY BE STIPULATED BY LAW. UNDER THE CIRCUMSTANCES, IN VIEW OF THE FOREGOING, WE ONLY CONSIDER IT FIT AND PROPER, EVEN AS OBSERVED DURING HEARING AND T O THE AGREEMENTS BY THE PARTIES, THAT THE MATTER, SETTING ASIDE THE IMPUGNED ORDER, IS RESTORED FOR PROPER FACTUAL AS WELL AS LEGAL DETERM INATION BACK TO THE FILE OF THE ASSESSING OFFICER (A.O.), WHO SHALL DECIDE T HE SAME AFTER ALLOWING THE ASSESSEE REASONABLE OPPORTUNITY TO PRESENT ITS CASE BEFORE HIM. THIS DECIDES GROUNDS 3 & 4 OF THE ASSESSEES APPEALS FOR BOTH THE YEARS. WE FIND THAT ON THE ISSUE OF THE EXPENDITURE ON SO CALLED COMMISSION AND DISALLOWANCE U/S 40(A)(I) OF THE ACT, THE TRIBUNAL CONSIDERED THE DECISION IN G.E. INDIA TECHNOLOGY CENTRE PVT. LTD., CIT VS R.D. AGRAWAL & CO. (1965) 56 ITR 20(SUPREME COURT), ORIENT GOA PVT. LT D. (SUPRA), CST VS INDRA INDUSTRIES (2011) 248 ITR 338 (SUPREME COURT), ETC. AND THEREAFTER SET-ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR PROPER FACTUA L AS WELL AS LEGAL DETERMINATION. BOTH THE PARTIES BEFORE US AG REED THAT ON IDENTICAL LINES, THE ISSUE MAY BE RESTORED TO TH E FILE OF THE LD. ASSESSING OFFICER. WE MAY ADD HERE THAT LD . ASSESSING OFFICER IS DIRECTED TO CONSIDER CIRCULAR NO.7/2009 (F.NO.500/135/2007-FTD-I) DATED 22/10/200 9, WHEREIN, EARLIER CIRCULAR NO.23 DATED 23/07/1969, N O.163 DATED 29/05/1975 AND CIRCULAR NO.786 DATED 07/02/20 10 WERE WITHDRAWN. THE ASSESSEE BE GIVEN OPPORTUNITY T O SUBSTANTIATE ITS CLAIM. THUS, THIS GROUND IS ALLOWE D FOR STATISTICAL PURPOSE. 51 ITA NO.3564, 3565 & 3887, 3888/MUM/2015 M/S ELEVE CORPORATION SINCE, IDENTICAL GROUNDS WERE RAISED IN ALL THE AP PEALS BEFORE US, THEREFORE, OUR AFORESAID ORDER WILL BE A PPLICABLE TO ALL THE APPEALS ON IDENTICAL ISSUE. FINALLY, THE APPEALS ARE DISPOSED OFF IN TERMS INDI CATED HEREINABOVE, CONSEQUENTLY, PARTLY ALLOWED FOR STATI STICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 21/04/2017. SD/- SD /- ( RAMIT KOCHAR ) (JOGINDER SINGH) !% & / ACCOUNTANT MEMBER & /JUDICIAL MEMBER MUMBAI; & DATED : 25/04/2017 F{X~{T? P.S/. .. !'#'()*+!*( / COPY OF THE ORDER FORWARDED TO : 1. ()*+ / THE APPELLANT 2. ,-*+ / THE RESPONDENT. 3. . . / ( () ) / THE CIT, MUMBAI. 4. . . / / CIT(A)- , MUMBAI 5. 23, , . ()$( 4 , / DR, ITAT, MUMBAI 6. 56 / GUARD FILE. !' / BY ORDER, -2) , //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI