2019 (1) TMI 259 - AT - Income Tax

TDS u/s 194I - demurrage/detention charges paid - non-resident shipping companies which are assessed u/s.172 - assessee submitted that non-adjudication of grounds would brand order of the Tribunal as suffering from apparent error - Held that - Their remains no ambiguity that the assessee was not liable for deduction of TDS u/s 194-I of the Act on the payment made to the Foreign Shipping Companies on account of demurrage charges. Accordingly, we set aside the order of ld. CIT(A) and delete the addition made by the AO . Case of DEMPO & CO. PVT. LTD., THE COMMISSIONER OF INCOME TAX 2016 (2) TMI 308 - BOMBAY HIGH COURT to be followed. - Decided in favour of assessee

Summary

Issues Involved:
1. Disallowance of TDS under section 194-I on demurrage charges paid to non-resident shipping companies.
2. Applicability of TDS provisions on demurrage charges under section 194-I for non-resident companies.
3. Interpretation of relevant legal provisions and circulars regarding TDS deduction.
4. Judicial interpretation of demurrage charges as rent and its implications on TDS deduction.
5. Calculation of interest under section 201(1A) of the Income Tax Act.

Detailed Analysis:

1. The appeal was filed against the order of the Ld. Commissioner of Income Tax (Appeals) regarding the disallowance of TDS under section 194-I on demurrage charges paid to non-resident shipping companies. The assessee contested that the demurrage charges were not subject to TDS deduction under section 194-I as they were paid to foreign companies assessed under section 172 of the Act.

2. The Assessing Officer (AO) considered demurrage charges as akin to rent and invoked section 194-I for TDS deduction. The AO relied on a judgment of the Bombay High Court in a similar case. Consequently, the AO treated the assessee as in default under section 201(1) and raised demands for TDS along with interest.

3. The Ld. CIT(A) upheld the AO's order, citing that demurrage charges were in the nature of rent and hence liable for TDS under section 194-I. The CIT(A) directed the AO to verify the appellant's contention regarding tax payment by the recipient companies and calculate interest under section 201(1A) accordingly.

4. The appellant argued before the ITAT that the Bombay High Court's judgment relied upon by the AO had been overturned by a larger bench in a subsequent case. The ITAT considered the legal position and the subsequent judgment, which clarified that demurrage charges to non-resident shipping companies were not subject to TDS under section 194-I.

5. The ITAT, based on the interpretation of the subsequent judgment, concluded that the assessee was not liable for TDS deduction under section 194-I on demurrage charges paid to foreign shipping companies. Consequently, the ITAT allowed the appeal, setting aside the orders of the lower authorities and deleting the addition made by the AO.

This detailed analysis covers the issues raised in the legal judgment, including the interpretation of relevant legal provisions, judicial precedents, and the final decision of the ITAT regarding TDS on demurrage charges paid to non-resident shipping companies.