2022 (2) TMI 519 - AT - Income Tax

TDS u/s 195 - disallowance u/s.40(a)(i) for ship hiring charges and weather report expenses paid to the non residents - chargeability of tax under Section 172 - HELD THAT - CIT(A) has categorically mentioned that Section 195 of the Act would apply only if payment is made which is chargeable under Income Tax Act 1961. AO has not given any reason as to why the chargeability of tax under Section 172 of the Act does not cover time charter of ships for which payment is made to non-resident. AO totally ignored the NOCs issued by Department allowing the ship for sailing in Indian Port as the payment is for time charter. The provisions of Section 172 of the Act has not at all indicated that there is any liability to pay tax on such receipts by the non-resident recipients. In this case, the charter ship for which payment was made to non-resident. As per the charging Section 172, no liability arises for payment of tax by the non- resident receiving payment for time charter. D.R. could not point out any discrepancy in the order of CIT(A). Therefore, the 1st issue raised in Revenue s ground no.1 is dismissed. Disallowance to weather routing report from the non residents and payment made to them - CIT(A) has given a categorical finding that income received by the non-resident for giving weather routing report in the form of analysis of data in tabular form/graphical representation is not chargeable to tax under any Section of the Income Tax Act including various sub-sections of Section 9(1) of the Act. There is no need to interfere with the findings of the CIT(A). Hence this issue is also dismissed.

Summary

Issues:
- Disallowance made under Section 40(a)(i) for ship hiring charges and weather report expenses paid to non-residents.
- Interpretation of Sections 172, 195, and 40(a)(i) of the Income Tax Act regarding tax liability on payments made to non-residents for time charter of ships.
- Taxability of income received by non-residents for providing weather routing reports.

Analysis:
1. The Revenue appealed against the CIT(A)'s order concerning the disallowance made under Section 40(a)(i) for ship hiring charges and weather report expenses paid to non-residents for the Assessment Year 2005-06. The Assessing Officer observed that the assessee paid ship hiring charges to non-residents without deducting tax at source, leading to a disallowance of Rs. 2,16,09,181 under Section 40(a)(i). Additionally, a disallowance of Rs. 15,583 was made for weather report expenses provided by a British Company. The CIT(A) allowed the appeal of the assessee, prompting the Revenue's challenge.

2. The Revenue argued that the ship hiring charges were taxable as the income accrued to the non-resident ship owner in India, necessitating TDS under Section 195. The Revenue contended that Section 172(1) did not apply to time charter payments, and Section 195 should have been invoked. The CIT(A) erred in deleting the disallowance under Section 40(a)(i) according to the Revenue. Regarding weather report expenses, the Revenue relied on the Assessing Officer's order for upholding the disallowance.

3. On the contrary, the assessee contended that no tax deduction was required under Section 195 as the payments were for time charter of ships, not for carriage of goods, passengers, etc. The assessee argued that Section 172 exempted tax liability for such payments to non-residents. The CIT(A) dismissed the Revenue's arguments, emphasizing that Section 195 applied only to payments chargeable under the Income Tax Act. The CIT(A) found no tax liability for the time charter payments and upheld the dismissal of the disallowance.

4. The Tribunal analyzed the provisions of Section 172, 195, and 40(a)(i) in detail. It noted that the Assessing Officer overlooked the NOCs issued for ship sailing in Indian ports under time charter agreements. The Tribunal concurred with the CIT(A)'s reasoning that tax liability did not arise for time charter payments to non-residents under Section 172. The Tribunal dismissed the Revenue's appeal on the first issue.

5. Regarding the weather routing report expenses, the CIT(A) determined that the income received by non-residents for providing such reports was not taxable under any section of the Income Tax Act. The Tribunal upheld the CIT(A)'s findings, leading to the dismissal of the second issue raised by the Revenue.

6. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision on both the disallowance of ship hiring charges and weather report expenses paid to non-residents for the Assessment Year 2005-06.