2012 (11) TMI 814 - AT - Income Tax

Applicability of sec 172 vs sec 44B - Regular / Occasional Shipping Business CIT(A) has decided that, Once a person claims that it is not engaged in occasional shipping business and wants to go out of the ambit of section 172, the recourse is provided in section 172(7) only and for that it has to opt for filling return u/s 139(1). Since, the appellant has opted for the option to be assessed u/s 172(7) by filing return of income u/s 139(1) even before 172(4) combined order was passed and also combined with the fact that they approached the AO at Mumbai to issue the 100% DTAA tax relief certificate showing their intent to be assessed under the regular provisions of the Act, that the appellant is in regular shipping business and liable to be assessed under other provisions of the Act including 44B, and not u/s 172(4). Held that - M/s Balaji Shipping Lines FZCO, UAE has accepted the liability to be dealt with the provisions of section 172(7) of the Act. The jurisdictional AO may, therefore, verify the position and take such action as may be warranted in law in terms of section 172(7) to ensure that the income of the assessee from the 86 voyages does not escape assessment as per normal provisions of the Act. - Appeal of the revenue dismissed - Decided in favor of assessee.

Summary

Issues:
1. Interpretation of section 172(4) of the Income Tax Act 1961.
2. Applicability of DTAA benefit to the assessee.
3. Assessment under section 172(7) of the Act.
4. Validity of the order passed by the Assessing Officer under section 172(4).

Analysis:

Issue 1: Interpretation of section 172(4) of the Income Tax Act 1961:
The case involved a dispute regarding the interpretation and application of section 172(4) of the Income Tax Act 1961. The Assessing Officer (AO) passed an order under this section concerning the assessment of income related to freight earnings without paying freight tax. The AO held that the beneficiary was not eligible for certain benefits under the Indo-UAE Treaty, as the principal was not engaged in regular shipping business. However, the CIT(A) later held that the order passed under section 172(4) was null and void as the appellant was engaged in regular shipping business, not occasional shipping business, and thus, the provisions of section 172(4) did not apply.

Issue 2: Applicability of DTAA benefit to the assessee:
The dispute also revolved around the eligibility of the assessee for Double Taxation Avoidance Agreement (DTAA) benefits. The Revenue contended that the assessee, through its local agent, wrongly claimed DTAA benefits for slot chartered vessels, as the principal did not own or charter any vessels. The CIT(A) held that the assessee, engaged in regular shipping business, was eligible for DTAA benefits, and the order passed under section 172(4) was deemed null and void.

Issue 3: Assessment under section 172(7) of the Act:
The CIT(A) further emphasized that the assessee had opted to be assessed under section 172(7) by filing a return of income under section 139(1) before the order under section 172(4) was passed. This choice indicated that the appellant was in regular shipping business and liable to be assessed under other provisions of the Act, such as section 44B, rather than under section 172(4).

Issue 4: Validity of the order passed by the Assessing Officer under section 172(4):
The Revenue challenged the CIT(A)'s decision, arguing that the order under section 172(4) was valid and that the assessee was assessable under section 172(7) of the Act. However, the Tribunal dismissed the appeal of the Revenue, citing a similar case where the order under section 172(4) was quashed, and directed the jurisdictional AO to ensure proper assessment under section 172(7) to prevent income from voyages escaping assessment under normal provisions of the Act.

In conclusion, the Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee was engaged in regular shipping business and entitled to DTAA benefits, rendering the order passed under section 172(4) null and void. The appeal of the Revenue was dismissed, and the cross-objection filed by the assessee was deemed infructuous.