2012 (12) TMI 866 - AT - Income Tax

Shipping business of non-residents - DTAA between India and UK denied - AO has passed composite order u/s 172(4) in respect of all the 45 voyages at 7.5% of total amount of freight - Held that - The persons covered by section 172 are only those who are in occasional shipping business and not in the regular shipping business. Looking to the magnitude of the voyages undertaken by the freight beneficiary and the fact that the respondent-company has been as observed by the CIT(A) regularly filing its return of income at Mumbai and being assessed to tax at Mumbai the finding of the CIT(A) that the freight beneficiary is not engaged in occasional shipping business but in regular shipping business and hence would be outside the scope of section 172 cannot be said to be untenable on facts and in law. His finding in this behalf is therefore confirmed. Similarly the Department has not placed any material on record to rebut the finding recorded by the CIT(A) that the respondent-company has already filed its return of income at Mumbai. That being the position the provisions of section 172(7) would apply to the respondent-company that gives an option to the owners/charterers of ships to seek assessment of their income in accordance with the normal provisions of the Income-tax Act. Besides, this the Income-tax Act does not permit multiple assessments in the hands of the same taxable entity and that too in respect of income from the same business. On these facts unable to disturb the finding recorded by the CIT(A). The order of the CIT(A) that the respondent-company is liable to be assessed on the basis of return filed u/s 139(1) for its entire income is therefore confirmed. His further order quashing the order passed by the AO u/s 172(4) is also resultantly confirmed. As held in Arabian Express Line Ltd. of United Kingdom (1994 (4) TMI 25 - GUJARAT HIGH COURT) by the very nature of assessment contemplated by section 172 it is not possible to deal with the cases covered by Double Taxation Avoidance Agreement. In the present matter the AO has rejected the claim of the respondent-company that its case falls under DTAA. Such an examination cannot be undertaken in the proceedings u/s 172 as the AO has no discretion u/s 172(2)/(4) except to compute the income @ 7.5% of freight paid or payable. It is perhaps for this reason that section 172(7) gives an option to the owners/charterers of ships to seek assessment of their income in accordance with the normal provisions of the Income-tax Act. Once a return is filed by a non-resident u/s 139 claiming the benefit of DTAA his assessment would need to be completed under the normal provisions of the Income-tax Act. Thus CIT-DR correctly directed AO to verify the position and tax the income of the freight beneficiary (represented by the respondent-company) from the business of handling cargo transportation (including slot chartering business) as per normal provisions of the IT Act.

Summary

Issues Involved:
1. Validity of the Assessing Officer's (AO) composite order under section 172(4).
2. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and UK.
3. Regular vs. Occasional Shipping Business.
4. Multiple assessments under section 172(4) and section 139(1).
5. Verification of income inclusion from 40 voyages in the return filed under section 139(1).

Detailed Analysis:

1. Validity of the AO's Composite Order under Section 172(4)
The AO passed a composite order under section 172(4) for 45 voyages, assessing taxable income at 7.5% of the total freight amount. The CIT(A) quashed this order, stating that the respondent-company is engaged in regular shipping business and not occasional shipping business. The CIT(A) held that the respondent should be assessed under section 44B and other regular provisions of the Income-tax Act, not under section 172(4).

2. Applicability of DTAA between India and UK
The AO denied the benefit of DTAA, claiming the freight beneficiary was only a slot charterer and not the owner or charterer of the ship. The CIT(A) did not adjudicate this issue directly but mentioned that if the respondent is not the owner/charterer, section 172 itself would not apply, making the AO's order null and void.

3. Regular vs. Occasional Shipping Business
The CIT(A) concluded that the respondent-company is engaged in regular shipping business. This conclusion was based on the respondent's history of filing returns under section 139(1) and the magnitude of voyages undertaken. The CIT(A) held that section 172 applies only to occasional shipping business, and thus, the respondent should be assessed under regular provisions, including section 44B.

4. Multiple Assessments under Section 172(4) and Section 139(1)
The CIT(A) observed that the Income-tax Act does not permit multiple assessments for the same income. Since the respondent had already filed returns under section 139(1), the AO's composite order under section 172(4) was quashed. The Tribunal confirmed this view, emphasizing that section 172(7) allows for regular assessment if a return is filed under section 139(1).

5. Verification of Income Inclusion from 40 Voyages in the Return Filed under Section 139(1)
The Department argued that the CIT(A) did not verify whether the income from 40 voyages was included in the return filed under section 139(1). The Tribunal directed the jurisdictional AO to verify this and ensure that the income from the 45 voyages does not escape assessment under the normal provisions of the Income-tax Act.

Conclusion:
The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order, confirming that the respondent-company should be assessed under regular provisions of the Income-tax Act. The Tribunal also directed the AO to verify the inclusion of income from the 40 voyages in the return filed under section 139(1). The cross-objection filed by the assessee was dismissed as not pressed.