2017 (1) TMI 1573 - AT - Income Tax

Disallowance u/s 40(a)(ia) - payment made towards sea freight expresses - non deduction of tds - applicability of provisions contained in sec 172 and CBDT Circular No.723 dated 19.09.1995 - Held that - as long as the assessee can demonstrate that the payment is made in respect of freight to non-resident shipping companies, the assessee does not have any tax withholding obligation under section 195 or section 194C. In the present case, it appears that complete details of invoices to the satisfaction of the Assessing Officer have not been furnished before the Assessing Officer or before the CIT(A) also. There is at best partial compliance of this requirement - the matter deserves to be remitted to the file of Assessing Officer with the direction that as long as the assessee can demonstrate that the payment is made to a nonresident directly or through authorized agents and the payment is in respect of the freight, the Assessing Officer shall not make any disallowance under section 40(a)(ia) on account of such payments. Assessee is not under any obligation to give evidence in respect of actual collection of tax from the non-resident shipping company under section 172 - Decided in favour of assessee for statistical purposes.

Summary

Issues:
Challenge to correctness of order under section 143(3) for assessment year 2008-09 regarding disallowance under section 40(a)(ia) for sea freight expenses.

Analysis:
The appellant challenged the correctness of the order passed by the CIT(A) disallowing a payment made towards sea freight expenses under section 40(a)(ia) for not deducting tax at source. The appellant argued that the provisions of section 194C and 195 were not applicable based on Circular No.723. However, the CIT(A) upheld the disallowance, stating that the appellant failed to provide evidence regarding the assessment of nonresident shipping companies under section 172. The Tribunal noted that as per Circular No.723, tax deduction requirements under sections 194C and 195 do not apply to payments made to non-residents for shipping business under section 172. The Tribunal found that the appellant did not fully comply with providing details of invoices. Therefore, the matter was remitted back to the Assessing Officer with directions not to disallow the payments if the appellant can demonstrate payments made to nonresidents for freight. The appellant was not obligated to provide evidence of tax collection under section 172. The appeal was allowed for statistical purposes.

This judgment highlights the interpretation of sections 172, 194C, and 195 of the Income Tax Act, 1961 concerning tax deduction at source from payments made to foreign shipping companies. The Tribunal emphasized the importance of demonstrating payments made to nonresidents for shipping business to avoid tax deduction obligations under sections 194C and 195. The appellant's failure to provide complete details of invoices led to the remittance of the matter back to the Assessing Officer for further examination. The judgment underscores the significance of Circular No.723 in exempting certain payments from tax deduction requirements based on specific criteria related to nonresident shipping companies and the applicability of section 172.