DCIT, Bangalore V. M/s Aga Fruits Pvt. Ltd., Bangalore

ITA 783/BANG/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 8643 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2010
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 11-06-2010
• Court: TRIBUNAL
• Department Lawyers: PREETI GARG
• Assessee Lawyers: H V GOUTHAMA
• Keywords: Capital asset; Recovery proceedings; Revenue expenditure; Capital expenditure
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.731(BANG)/2010 (ASSESSMENT YEAR: 2005-06) M/S. AGA FRUITS PVT. LTD. NO.14, BERILE STREET, LANGFORD TOWN, BANGALORE. VS. APPELLANT DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE 11(1), BANGALORE. RESPONDENT AND ITA NO.783(BANG)/2010 (ASSESSMENT YEAR: 2005-06) DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 11(1), BANGALORE. VS. APPELLANT M/S. AGA FRUITS PVT. LTD. BANGALORE. RESPONDENT ASSESSEE BY: SHRI H.V.GOUTHAMA. REVENUE BY : SMT. PREETI GARG. O R D E R PER SMT. P.MADHAVI DEVI, JM : THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)I, BANGALORE, DATED 29-3-2010 FOR THE ASSESSMENT YEAR 2005-06. ITA 731 & 783(BANG)/2010 PAGE 2 OF 15 2. WE WILL FIRST TAKE UP THE ASSESSEES APPEAL ( ITA NO.731/BANG/2010 ). THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-I ERRED IN CONFIRMING THE ORDER PASSED BY THE LEARNED ASSESSING OFFICER, IN UPHOLDING THE ADDITIONS MADE U/S 40(A)(IA) OF INCOME TAX ACT, SINCE THE APPELLANT HAD NOT DEDUCTED AND REMITTED THE INCOME TAX ON PAYMENT OF FREIGHT CHARGES PAID TO NON-RESIDENT COMPANY. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-I OUGHT TO HAVE CONSIDERED THE FACT THAT THE PAYMENT TO NON-RESIDENT SHIPPING COMPANY WAS MADE THROUGH THE FORWARDING AGENTS IN INDIAN IN CONVERTIBLE FOREIGN EXCHANGE. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-I SHOULD HAVE CONSIDERED THE DIRECTIONS ISSUED BY CBDT IN CIRCULAR NO.723 DATED 19-9-195 CLARIFYING THE SCOPE OF SECTION 172 OF INCOME TAX ACT, WHICH CLEARLY STATES THAT, PROVISION OF SECTION 194C & 195 RELATING TO TDS ARE NOT APPLICABLE TO THE PAYMENTS MADE TO NON-RESIDENTS, IN RESPECT OF SHIPPING BUSINESS IN AS MUCH AS SECTION 172 WHICH IS SELF CONTAINED CODE FOR LEVY AND RECOVERY OF TAX, SHIP-WISE AND JOURNEY-WISE. 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-I WAS WRONG IN IGNORING THAT ALL THE BILLS RAISED BY THE FORWARDING AGENTS INDICATES THE REMITTANCE OF FOREIGN CURRENCY TO THE SHIPPING COMPANIES. 5. BASED ON THE ABOVE, THE APPELLANT SUBMITS THAT, SINCE THE REMITTANCE OF FREIGHT CHARGES TO NON- RESIDENT COMPANY IS BY CONVERTIBLE FOREIGN EXCHANGE, THE PROVISION OF SECTION 195 WOULD NOT BE APPLICABLE AND CONSEQUENTLY 40(A)(IA) IS NOT APPLICABLE, FOR SUCH PAYMENTS. FOR THE ABOVE AND ANY OTHER GROUNDS THAT MAY BE ADVANCED AT THE TIME OF HEARING, THE APPELLANT PRAY S THAT THE APPEAL BE ALLOWED. ITA 731 & 783(BANG)/2010 PAGE 3 OF 15 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-C OMPANY WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORTING OF FRUIT PULP, FILED ITS RETURN OF INCOME FOR THE A SSESSMENT YEAR 2005-06 ON 31-10-205 DISCLOSING AN INCOME OF RS.18, 31,210/-. INITIALLY THE RETURN WAS PROCESSED U/S 143(1) OF TH E INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT'] AN D SUBSEQUENTLY THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT BY CALLING FOR VARIOUS DETAILS AND EXAMINING THEM. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3), THE AO OBSERVED THAT THE AS SESSEE HAS MADE VARIOUS PAYMENTS WITHOUT DEDUCTING TAX AT SOUR CE. HE, THEREFORE, MADE THE FOLLOWING DISALLOWANCES U/S 40A (IA): I) PROFESSIONAL CHARGES RS. 1,53,050/- II) COMMISSION PAYMENT RS.17,34,396/- III) FREIGHT EXPENSES PAID TO M/S.ASIAN EXPRESS FORWARDERS RS.78,63,890/- IV) PROCESSING CHARGES RS. 5,83,417/- IN ADDITION TO THE ABOVE DISALLOWANCE , THE AO ALSO OBSERVED THAT THE ASSESSEE-COMPANY HAD BORROWED LOANS FROM M/S. KARNATAKA BANK LTD., OVERSEAS BRANCH, BANGALOR E AND UTILIZED THE SAME FOR THE PURPOSE OF PURCHASE OF AN IMMOVABLE PROPERTY SITUATED AT BANGALORE AND INCURRED AN INTE REST EXPENDITURE OF RS.1,21,439/-. AS THE LOAN WAS UTIL IZED FOR THE PURPOSE OF ACQUIRING CAPITAL ASSET, HE TREATED THE INTEREST PAID ALSO AS CAPITAL EXPENDITURE AND DISALLOWED THE SAME AND BROUGHT IT TO TAX. AGGRIEVED BY THE ADDITIONS MADE BY THE AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). ITA 731 & 783(BANG)/2010 PAGE 4 OF 15 4. THE CIT(A) CALLED FOR A REMAND REPORT FROM THE AO ON THE SUBMISSIONS MADE BY THE ASSESSEE ON THE ISSUE O F DISALLOWANCE U/S 40A(IA) AND ALSO THE DISALLOWANCE OF INTEREST. THE AO SUBMITTED HIS REMAND REPORT AND AFTER CONSID ERING THE SAME, THE CIT(A) CAME TO THE CONCLUSION THAT THE AS SESSEE HAS NOT FURNISHED THE DETAILS AS TO HOW M/S.ASIAN EXPRE SS FORWARDERS, BANGALORE REIMBURSED VARIOUS CHARGES IN CLUDING FREIGHT AND THAT NO PROOF HAS BEEN PROVIDED THAT TH E RECIPIENT IS A NON-RESIDENT OR THAT IT IS FOR CHARGES OTHER THAN FREIGHT. THUS, FOR WANT OF CORROBORATIVE EVIDENCE, HE HELD THAT TH E PAYMENT OF RS.78,63,819/- IS SUBJECT TO TDS PROVISION AND THUS CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER. 4.1. AS REGARDS THE ADDITION OF RS.1,53,050/- ON A CCOUNT OF PAYMENT OF PROFESSIONAL CHARGES THE CIT(A) HELD THAT THE ASSESSEE HAS NOT GIVEN DETAILS AS TO HOW THE SAME I S WITHIN THE PRESCRIBED LIMIT AND SINCE GROSS PROFESSIONAL CHARG ES PAID WERE OF RS.1,53,050/-, HE HELD THAT TAX SHOULD HAVE BEEN DEDUCTED AT SOURCE. ACCORDINGLY, HE UPHELD THE ADDITION. AG AINST THESE TWO ADDITIONS, THE ASSESSEE IS IN APPEAL BEFORE US. 4.2. AS REGARDS THE ADDITION OF RS.17,34,396/-, TH E CIT(A) HELD THAT THIS AMOUNT REPRESENTED PAYMENT TO ITS FOREIGN AGENT NAMED M/S. SULEMAN SERVICES (U.K) LTD., IN FO REIGN CURRENCY FOR SERVICES RENDERED BY IT OUTSIDE INDIA AND THE SAME SHOULD NOT HAVE BEEN DISALLOWED BY THE AO AS PER CB DT CIRCULAR NO.723 DATED 19-9-1995. HE ACCORDINGLY DELETED THE ADDITION. ITA 731 & 783(BANG)/2010 PAGE 5 OF 15 4.3. AS REGARDS THE ADDITION OF INTEREST OF RS.1,2 1,439/- IS CONCERNED, HE OBSERVED THAT THE RESIDENTIAL HOUS E LOCATED AT MUNICIPAL NOS.2/C AND 2/C-1 AT HAYES ROAD, WARD NO. 76, BANGALORE ADMEASURING 4500 SQ.FT. WAS PURCHASED BY THE ASSESSEE FROM ONE MR. LIAQATH ALI KHAN FOR A PRICE OF RS.90 LAKHS AND THE AO MISCONNECTED THIS FACT WITH THE TE RM LOAN OF RS.83 LAKHS TAKEN FROM KARNATAKA BANK LTD. IN FEBRU ARY 2005 ON WHICH INTEREST WAS PAID OF RS.1,21,439/- UTILIZE D FOR WORKING CAPITAL PURPOSE AND DISALLOWED THE SAME THINKING TH AT THE PAYMENT OF INTEREST WAS FOR THE LOAN OF RS.90 LAKHS TAKEN FROM CITI BANK, UTILIZED FOR PURCHASE OF THE RESIDENTIAL PROPERTY. HE HELD THAT THE CLARIFICATION OF THE ASSESSEE IS ALSO CORROBORATED BY EVIDENCE AND ACCORDINGLY HE DELETED THE ADDITION . AGAINST THE DELETION OF THESE TWO ADDITIONS, REVENUE IS IN APPEAL BEFORE US BY RAISING THE FOLLOWING GROUNDS OF APPEAL IN ITA NO.783(BANG)/2010: 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE IN SO FAR AS IT IS PREJUDICIAL TO THE REVENUE. 2. THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF RS.17,34,396/- MADE BY THE AO U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE ON COMMISSION PAYMENTS. 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE AMOUNT OF RS.17,34,396/- REPRESENTED PAYMENT TO THE ASSESSEES FOREIGN AGENTS IN FOREIGN CURRENCY FOR SERVICES RENDERED BY IT OUTSIDE INDIA AND THAT THE AMOUNT SHOULD NOT HAVE BEEN DISALLOWED BY THE AO AS PER CIRCULAR 723 DATED 19/9/1995. ITA 731 & 783(BANG)/2010 PAGE 6 OF 15 4. THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE COULD NOT PRODUCE EVIDENCE TO PROVE THAT THE PAYER WAS A NON-RESIDENT. 5. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE LOAN ON WHICH INTEREST OF RS.121439/- PAID WAS NOT UTILIZED FOR INVESTMENT IN THE HOUSE PROPERTY, WITHOUT EXAMINING THE RELEVANT FACTS IN DETAIL AND IN HOLDING THAT THE INTEREST IS ALLOWABLE AS REVENUE EXPENDITURE. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) BE SET ASIDE IN SO FAR AS IT RELATES TO THE ABOVE ISSUE AND RESTORE THE ADDITION MADE BY THE AO. 5. SHRI H.V.GOUTHAMA, LEARNED COUNSEL FOR ASSESSEE SUBMITTED THAT THE PAYMENTS MADE BY THE ASSESSEE AR E FOR THE SHIPPING OF ITS GOODS OUTSIDE INDIA AND AS PROVIDED U/S 172 OF THE ACT, IN CASE OF THE PAYMENTS MADE FOR THE SHIPM ENT OF GOODS OR PASSENGERS, THE RECIPIENT HAS TO PAY INCOM E-TAX BEFORE DEPARTING FROM THE PORT AND THEREFORE THE PR OVISIONS OF SEC.194 DO NOT APPLY. IN SUPPORT OF THIS CONTENTIO N, HE ALSO PLACED RELIANCE UPON THE CBDT CIRCULAR NO.723 DATED 19-9-1995 WHEREIN IT IS PROVIDED THAT THE PROVISIONS OF SEC.1 72 ARE TO APPLY, NOT WITHSTANDING ANYTHING CONTAINED IN OTHER PROVISIONS OF THE ACT AND THEREFORE IN SUCH CASES, THE PROVISI ONS OF SECTION 194C AND 195 RELATING TO DEDUCTION OF TAX AT SOURCE ARE NOT APPLICABLE AND THE RECOVERY OF TAX IS TO BE REGULAT ED FOR A VOYAGE UNDERTAKEN FROM ANY PORT IN INDIA BY A SHIP UNDER THE PROVISIONS OF SEC.172 OF THE ACT. THUS, ACCORDING T O LEARNED COUNSEL FOR ASSESSEE, THE PAYMENTS MADE TO THE NON- RESIDENT ITA 731 & 783(BANG)/2010 PAGE 7 OF 15 SHIP OWNERS OR CHARTERS ARE NOT LIABLE TO TDS PROVI SIONS AS THE OWNERS OR CAPTAIN OF THE SHIP IS LIABLE TO MAKE PAY MENT BEFORE DEPARTING FROM THE INDIAN PORT. AS REGARDS THE CIT (A)S FINDING THAT THE ASSESSEE HAS NOT PROVIDED ANY EVIDENCE TO SHOW THAT THE PAYMENT IS TO NON-RESIDENT SHIP OWNERS, HE DREW OUR ATTENTION TO PAGE 28 OF THE PAPER BOOK WHICH IS A L ETTER ADDRESSED TO THE INCOME-TAX OFFICER FROM M/S.ASIAN EXPRESS FORWARDERS WHEREIN IT IS CLEARLY MENTIONED THAT ORI GINALLY THE PROMOTERS OF M/S.ASIAN EXPRESS FORWARDERS WAS MANAG ING THE SHIPMENTS UNDER THE NAME OF MCEES LOGISTICS PVT. LT D. BUT DUE TO SOME FINANCIAL PROBLEMS THE PROMOTERS HAD TO DIS CONTINUE THEIR OPERATIONS OF MCEES LOGISTICS PVT. LTD. AND O PERATED THROUGH M/S.ASIAN EXPRESS FORWARDERS AND THE ASSESS EE HAS BEEN COLLECTING FREIGHT ON BEHALF OF MCEES LOGISTIC S PVT. LTD. (WHICH IS NOW BACK IN BUSINESS AND FILING ITS RETUR N REGULARLY IN SPITE OF NOT HAVING ANY BUSINESS TRANSACTIONS FOR F EW YEARS). IT WAS ALSO SUBMITTED THAT ALL THE FREIGHT BILLS ARE R EMITTED THROUGH BANK TO THE RECIPIENT LINERS OR TO THEIR AGENTS DUR ING THE FINANCIAL YEAR. HE ALSO DREW OUR ATTENTION TO THE VARIOUS COPIES OF THE INVOICES ISSUED BY THE M/S.ASIAN EXPRESS FOR WARDERS WHEREIN THE NAME OF THE ASSESSEE IS MENTIONED AS EX PORTER AND THE BILL NUMBER/INVOICE NUMBER IS ALSO MENTIONED AN D THE NAME OF THE VESSEL IS MENTIONED AND ALSO THE DESTINATION BEING OVERSEAS SUCH AS UAE IS MENTIONED AND ALSO FREIGHT CHARGES IN DOLLARS IS MENTIONED. THUS, ACCORDING TO THE LEARN ED COUNSEL FOR ASSESSEE, IT IS CLEARLY PROVED THAT THE ASSESSEE HA S EXPORTED THE ITA 731 & 783(BANG)/2010 PAGE 8 OF 15 GOODS TO VARIOUS DESTINATIONS OUTSIDE INDIA AND ALL THE DETAILS ARE READILY AVAILABLE BOTH BEFORE THE AO AS WELL AS THE CIT(A) BUT THEY HAVE NOT CONSIDERED THE SAME IN PROPER PER SPECTIVE AND HAVE DISALLOWED THE SAME HOLDING THAT THERE IS NO CORROBORATIVE EVIDENCE. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND SUBMI TTED THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO SHOW THAT M/S.ASIAN EXPRESS FORWARDERS IS THE AGENT OF A NON- RESIDENT COMPANY. THUS, ACCORDING TO HIM, IN THE ABSENCE OF ANY EVIDENCE TO THIS EFFECT, TAX HAS TO BE DEDUCTED AT SOURCE AND ON FAILURE TO DO SO, THE PROVISIONS OF SEC.40A(IA) ARE APPLICABLE. 6. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL SUBMISSIONS WE FIND THAT THE MAIN DISALLO WANCE IS U/S 40A(IA) OF THE ACT FOR NON DEDUCTION OF TAX AT SOUR CE FROM THE PAYMENTS MADE BY THE ASSESSEE TO CERTAIN PARTIES. FOR PROPER APPRECIATION OF FACTS AND THE LEGAL POSITION, THE P ROVISIONS OF SEC.40A(IA) ARE REPRODUCED HEREUNDER: 40. AMOUNTS NOT DEDUCTIBLE. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND G AINS OF BUSINESS OR PROFESSION- (A) IN THE CASE OF ANY ASSESSEE (I) . (IA) ANY INTEREST, COMMISSION OR BROKERAGE, FEES FO R 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 SUPPLY OF LABOUR F OR ITA 731 & 783(BANG)/2010 PAGE 9 OF 15 CARRYING OUT ANY WORK), 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 DUR ING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SECTION 200: PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR, HAS BE EN DEDUCTED IN THE PREVIOUS YEAR BUT PAID IN ANY SUBSEQUENT YEAR AFTER THE EXPIRY OF THE TIME PRESCR IBED UNDER SUB-SECTION (1) OF SECTION 200, SUCH SUM SHAL L BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF T HE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. EXPLANATION . FOR THE PURPOSES OF THIS SUB-CLAUSE (I) COMMISSION OR BROKERAGE SHALL HAVE THE SAME MEANING AS IN CLAUSE (I) OF THE EXPLANATION TO SECTION 194H; (II) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9; (III) PROFESSIONAL SERVICES SHALL HAVE THE SAME MEANING AS IN CLAUSE (A) OF THE EXPLANATION TO SECTION 194J; (IV) WORK SHALL HAVE THE SAME MEANING AS IN EXPLANATION III TO SECTION 194C FROM A LITERAL READING OF THE SAID PROVISION, IT IS CLEAR THAT THE PAYMENTS OF THE NATURE MENTIONED IN SUB-CLAUSE (IA) PAYABLE TO RECIPIENTS ARE SUBJECT TO DEDUCTION OF TAX AT SOURC E AND IF SUCH TAX IS NOT DEDUCTED THE SAME IS TO BE DISALLOWED. THE BUSINESS OF THE ASSESSEE IS MANUFACTURING AND EXPORT OF FRUI T PULP. THE DISPUTED AMOUNT WAS RELATING TO FREIGHT CHARGES PAI D TO M/S.ASIAN EXPRESS FORWARDERS FOR EXPORT OF FRUIT PU LP. THE FRUIT PULP IS ALLEGEDLY EXPORTED BY SHIP. THEREFORE, THE PROVISIONS OF SECTION 172 WILL APPLY. THE PROVISIONS OF SEC.172 READ AS UNDER: ITA 731 & 783(BANG)/2010 PAGE 10 OF 15 '172. SHIPPING BUSINESS OF NON-RESIDENTS.--(1) THE PROVISIONS OF THIS SECTION SHALL, NOTWITHSTANDING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THIS ACT, APPLY FOR THE PURPOSE OF THE LEVY AND RECOVERY OF T AX IN THE CASE OF ANY SHIP, BELONGING TO OR CHARTERED BY A NON-RESIDENT, WHICH CARRIES PASSENGERS, LIVE-STOCK, MAIL OR GOODS SHIPPED AT A PORT IN INDIA. (2) WHERE SUCH A SHIP CARRIES PASSENGERS, LIVE-STOC K, MAIL OR GOODS SHIPPED AT A PORT IN INDIA, SEVEN AND A HALF PER CENT. OF THE AMOUNT PAID OR PAYABLE ON ACC OUNT OF SUCH CARRIAGE TO THE OWNER OR THE CHARTERER OR T O ANY PERSON ON HIS BEHALF, WHETHER THAT AMOUNT IS PAID O R PAYABLE IN OR OUT OF INDIA, SHALL BE DEEMED TO BE I NCOME ACCRUING IN INDIA TO THE OWNER OR CHARTERER ON ACCO UNT 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 FU LL 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 SATISF IED THAT IT IS NOT POSSIBLE FOR THE MASTER OF THE SHIP TO FURNISH THE RETURN REQUIRED BY THIS SUB-SECTION BEF ORE THE DEPARTURE OF THE SHIP FROM THE PORT AND PROVIDE D THE MASTER BF THE SHIP HAS MADE SATISFACTORY ARRANGEMEN TS FOR THE FILING OF THE RETURN AND PAYMENT OF THE TAX BY ANY OTHER PERSON ON HIS BEHALF, THE ASSESSING OFFIC ER MAY, IF THE RETURN IS FILED WITHIN THIRTY DAYS OF T HE DEPARTURE OF THE SHIP, DEEM THE FILING OF THE RETUR N BY THE PERSON SO AUTHORIZED BY THE MASTER AS SUFFICIEN T COMPLIANCE WITH THIS SUB-SECTION. (4) ON RECEIPT OF THE RETURN, THE ASSESSING OFFICER SHALL ASSESS THE INCOME REFERRED TO IN SUB-SECTION (2) AN D DETERMINE THE SUM PAYABLE AS TAX THEREON AT THE RAT E OR RATES IN FORCE APPLICABLE TO THE TOTAL INCOME OF A COMPANY WHICH HAS NOT MADE THE ARRANGEMENTS REFERRED TO IN SECTION 194 AND SUCH SUM SHALL BE PAYABLE BY THE MASTER OF THE SHIP. (5) FOR THE PURPOSE OF DETERMINING THE TAX PAYABLE UNDER SUB-SECTION (4), THE ASSESSING OFFICER MAY CA LL FOR SUCH ACCOUNTS OR DOCUMENTS AS HE MAY REQUIRE. ITA 731 & 783(BANG)/2010 PAGE 11 OF 15 (6) A PORT CLEARANCE SHALL NOT BE GRANTED TO THE SH IP UNTIL THE COLLECTOR OF CUSTOMS OR OTHER OFFICER DUL Y AUTHORIZED TO GRANT THE SAME, IS SATISFIED THAT THE TAX ASSESSABLE UNDER THIS SECTION HAS BEEN DULY PAID OR THAT SATISFACTORY ARRANGEMENTS HAVE BEEN MADE FOR THE PAYMENT THEREOF. (7) NOTHING IN THIS SECTION SHALL BE DEEMED TO PREV ENT THE OWNER OR CHARTERER OF A SHIP FROM CLAIMING BEFO RE THE EXPIRY OF THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE DATE OF DEPARTURE OF THE SHIP FROM THE INDIAN PORT FALLS, THAT AN ASSESSMENT BE M ADE OF HIS TOTAL INCOME OF THE PREVIOUS YEAR AND THE TA X PAYABLE ON THE BASIS THEREOF BE DETERMINED IN ACCORDANCE WITH THE OTHER PROVISIONS OF THIS ACT, A ND IF HE SO CLAIMS, ANY PAYMENT MADE UNDER THIS SECTION I N RESPECT OF THE PASSENGERS, LIVE-STOCK, MAIL OR GOOD S SHIPPED AT INDIAN PORTS DURING THAT PREVIOUS YEAR S HALL BE TREATED AS A PAYMENT IN ADVANCE OF THE TAX LEVIA BLE FOR THAT ASSESSMENT YEAR, AND THE DIFFERENCE BETWEE N 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 REFERRED TO IN SUB-SECTION (2) SHALL INCLUDE THE AM OUNT PAID OR PAYABLE BY WAY OF DEMURRAGE CHARGE OR HANDLING CHARGE OR ANY OTHER AMOUNT OF SIMILAR NATU RE. FROM A PLAIN READING OF THE ABOVE SECTION IT IS CLE AR THAT WHERE A SHIP BELONGING TO OR CHARTERED BY A NON-RESIDENT, CARRIES PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPED AT A P ORT IN INDIA, THEN A PORT CLEARANCE SHALL NOT BE GRANTED TO THE S HIP UNTIL THE COLLECTOR OF CUSTOMS OR OTHER OFFICER DULY AUTHORIZ ED TO GRANT THE SAME IS SATISFIED THAT THE TAX ASSESSABLE UNDER THIS SECTION HAS BEEN DULY PAID OR THAT SATISFACTORY ARRANGEMENT S HAVE BEEN MADE FOR THE PAYMENT THEREOF. THUS IT IS CLEAR THA T TAX IS TO BE COLLECTED FROM THE RECIPIENT BEFORE THE SHIP DEPART S FROM INDIA. CIRCULAR NO.723 DATED 19-9-1995 CLARIFIES THAT WHER E PROVISIONS OF SEC.172 ARE TO APPLY, THE PROVISIONS OF SECTIONS 194C AND 195 ITA 731 & 783(BANG)/2010 PAGE 12 OF 15 ARE NOT APPLICABLE. FOR THE SAKE OF CONVENIENCE TH E SAID CIRCULAR IS REPRODUCED HEREUNDER: TAX DEDUCTION AT SOURCE FROM PAYMENT MADE TO FOREIGN SHIPPING COMPANIES 1. REPRESENTATIONS HAVE BEEN RECEIVED REGARDING THE SCOPE OF SECTIONS 172, 194C AND 195 OF THE INCOME- TAX ACT, 1961, IN CONNECTION WITH TAX DEDUCTION AT SOURCE FROM PAYMENTS MADE TO THE FOREIGN SHIPPING COMPANIES OR THEIR AGENTS. 2. SECTION 172 DEALS WITH SHIPPING BUSINESS OF NON- RESIDENTS. SECTION 172(1) PROVIDES THE MODE OF THE LEVY AND RECOVERY OF TAX IN THE CASE OF ANY SHIP, BELONGING TO OR CHARTERED BY A NON-RESIDENT, WHICH CARRIES PASSENGERS, LIVESTOCK, MAIL OR GOODS SHIPPE D AT A PORT IN INDIA. AN ANALYSIS OF THE PROVISIONS O F SECTION 172 WOULD SHOW THAT THESE PROVISIONS HAVE TO BE APPLIED TO EVERY JOURNEY A SHIP, BELONGING TO OR CHARTERED BY A NON-RESIDENT, UNDERTAKES FROM ANY PORT IN INDIA. SECTION 172 IS A SELF-CONTAINED CODE FOR THE LEVY AND RECOVERY OF THE TAX, SHIP-WISE, AN D JOURNEY-WISE, AND REQUIRES THE FILING OF THE RETURN WITHIN A MAXIMUM TIME OF THIRTY DAYS FROM THE DATE OF DEPARTURE OF THE SHIP. 3. THE PROVISIONS OF SECTION 172 ARE TO APPLY, NOTWITHSTANDING ANYTHING CONTAINED IN OTHER PROVISIONS OF THE ACT. THEREFORE, IN SUCH CASES, TH E PROVISIONS OF SECTIONS 194C AND 195 RELATING TO TAX DEDUCTION AT SOURCE ARE NOT APPLICABLE. THE RECOVER Y OF TAX IS TO BE REGULATED, FOR A VOYAGE UNDERTAKEN FROM ANY PORT IN INDIA BY A SHIP UNDER THE PROVISIO NS OF SECTION 172. 4. SECTION 194C DEALS WITH WORK CONTRACTS INCLUDING CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN RAILWAYS. THIS SECTION APPLIES TO PAYMENTS MADE BY A PERSON REFERRED TO IN CLAUSES (A) TO (J) OF SUB-SECTION (1) TO ANY RESIDENT (TERMED AS CONTRACTOR). IT IS CLEAR FROM THE SECTIO N THAT THE AREA OF OPERATION OF TDS IS CONFINED TO PAYMENTS MADE TO ANY RESIDENT. ON THE OTHER HAND, SECTION 172 OPERATES IN THE AREA OF COMPUTATION OF PROFITS FROM SHIPPING BUSINESS OF ITA 731 & 783(BANG)/2010 PAGE 13 OF 15 NON-RESIDENTS. THUS, THERE IS NO OVERLAPPING IN THE AREAS OF OPERATION OF THESE SECTIONS. 5. THERE WOULD, HOWEVER, BE CASES WHERE PAYMENTS ARE MADE TO SHIPPING AGENTS OF NON-RESIDENT SHIP- OWNERS OR CHARTERERS FOR CARRIAGE OF PASSENGERS ETC ., SHIPPED AT A PORT IN INDIA. SINCE, THE AGENT ACTS O N BEHALF OF THE NON-RESIDENT SHIP-OWNER OR CHARTERER, HE STEPS INTO THE SHOES OF THE PRINCIPAL. ACCORDING LY, PROVISIONS OF SECTION 172 SHALL APPLY AND THOSE OF SECTIONS 194C AND 195 WILL NOT APPLY. THUS IT IS CLEAR THAT WHERE THE NON-RESIDENT SHIP O WNER OR CHARTERER HAS TO MAKE PAYMENT BEFORE DEPARTING FROM THE INDIAN PORT, THE PAYER IS NOT LIABLE TO DEDUCT TAX AT SOURCE U/S 194C OF THE ACT. IN THE CASE BEFORE US, FROM THE I NVOICES FILED BEFORE US, IT IS CLEAR THAT THE PAYMENTS ARE MADE F OR THE EXPORT OF FRUIT PULP FROM AN INDIAN PORT TO A FOREIGN DEST INATION. THUS IT IS CLEAR THAT THE PAYMENTS HAVE BEEN MADE TO AN OWNER OF SHIP OR CHARTERER OF A SHIP THROUGH M/S.ASIAN EXPRE SS FORWARDERS.DV WHETHER M/S.ASIAN EXPRESS FORWARDER S HAVE MADE PAYMENT TO THE PRINCIPAL OR AGENT OF THE NON-R ESIDENT SHIP HAS BEEN DOUBTED BY THE AO AS WELL AS THE CIT(A). EVEN FROM THE LETTER WRITTEN BY M/S.ASIAN EXPRESS FORWARDERS PLACED AT PAGE 28 OF THE PAPER BOOK, IT IS NOT CLEAR AS TO PA RTIES TO WHOM PAYMENTS HAVE BEEN MADE AND ALSO WHETHER MCEES LOGI STICS PVT. LTD. ON WHOSE BEHALF M/S.ASIAN EXPRESS FORWARD ERS IS DIRECTLY FUNCTIONING, IS A NON-RESIDENT COMPANY. T HE ASSESSEE HAS FAILED TO PRODUCE ALL THESE DETAILS. MERELY BE CAUSE THE ASSESSEE NOT PRODUCED ANY OF THESE DETAILS, IT CANN OT BE PRESUMED THAT PAYMENTS ARE NOT MADE TO NON-RESIDENT SHIPPING ITA 731 & 783(BANG)/2010 PAGE 14 OF 15 COMPANY OR CHARTER OF A SHIP BECAUSE THE FRUIT PULP IS EXPORTED TO FOREIGN DESTINATION. IN VIEW OF THE SAME, WE DE EM IT FIT AND PROPER TO REMAND THIS ISSUE TO THE FILE OF THE AO T O VERIFY AS TO WHETHER MCEES LOGISTICS PVT. LTD. IS A NON-RESIDENT COMPANY AND THE ASSESSEE IS ALSO DIRECTED TO PROVIDE DETAIL S AS TO THE PARTIES TO WHOM THE PAYMENTS HAVE BEEN MADE BY M/S. ASIAN EXPRESS FORWARDERS. IN VIEW OF THE SAME, THE ASSES SEES APPEAL IS PARTLY ALLOWED. AS REGARDS THE REVENUES APPEAL, WE FIND THAT THE CIT(A) HAS VERIFIED FROM THE PARTICULARS FILED BY THE ASSE SSEE THAT THE PAYMENT OF RS.17,34,396/- HAS BEEN MADE TO FOREIGN AGENT NAMED SULEMAN SERVICES (U.K) LTD., PO BOX NO.4946, JEDDAH 21411, SAUDI ARABIA IN FOREIGN CURRENCY FOR SERVICE S RENDERED BY IT OUTSIDE INDIA. THE REVENUE HAS NOT BEEN ABLE TO BRING OUT ANY EVIDENCE BEFORE US TO REBUT THIS FINDING OF THE CIT(A) AND AS TO HOW THE CONTENTION OF THE ASSESSEE IS NOT COR RECT. THEREFORE, WE HOLD THAT THE CIT(A) WAS RIGHT IN FOL LOWING THE CIRCULAR NO.723 DATED 19-9-1995 IN DELETING THE ADD ITION MADE BY THE AO ON THIS ACCOUNT. THE OTHER ADDITION DELETED BY THE CIT(A) IS WITH R EGARD TO INTEREST OF RS.1,21,439/- TREATING THE SAME AS CAPI TAL EXPENDITURE. WE FIND THAT THE ASSESSEE HAS FILED A LL THE DETAILS WITH REGARD TO THE LOAN PAYMENT FOR THE TERM LOAN O F RS.83 LAKHS TAKEN FROM KARNATAKA BANK LTD. IN FEBRUARY 20 05 WHICH HAS BEEN UTILIZED FOR WORKING CAPITAL PURPOSES. IT IS ON ACCOUNT OF THIS LOAN THAT THE ASSESSEE HAS INCURRED THE INT EREST OF ITA 731 & 783(BANG)/2010 PAGE 15 OF 15 RS.1,21,439/- AND NOT ON THE LOAN TAKEN OF RS.94 LA KHS FROM CITI BANK WHICH HAS BEEN UTILIZED FOR THE PURPOSE O F BUYING RESIDENTIAL PROPERTY. CORROBORATIVE EVIDENCE HAD B EEN FILED BEFORE THE CIT(A) AS OBSERVED BY HIM IN HIS ORDER. THE REVENUE HAS NOT BEEN ABLE TO PLACE ANY EVIDENCE BEFORE US T O REBUT THIS FINDING OF THE CIT(A). HENCE, WE DO NOT SEE ANY REA SON TO INTERFERE WITH THE FINDING OF THE CIT(A) AND UPHOLD THE SAME. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED A ND THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOS ES. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH DECEMBER, 2010 SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (SMT.P.MADHAVI DEVI) JUDICIAL MEMBER PLACE : BANGALORE DATED: 15 TH DECEMBER, 2010 EKS COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) CONCERNED 4. CIT 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE