2022 (9) TMI 836 - AT - Income Tax

Profits of non-residents from occasional shipping business u/s 172 - Applicability of provisions u/s 194C - Payments made to agents of Foreign Shipping Companies - Assessee reiterated its contention that it has made payments to agents of foreign shipping companies, therefore, these payments are covered u/s 172 of the Act, and are fully exempt from TDS deduction - HELD THAT - CBDT Circular No. 723 dated 19.09.1995 clearly states that provisions of section 172 applies to payments made to agents of foreign shipping companies and therefore, provisions of section 194C of the Act do not apply. Since the aforementioned Circular has been followed by the ld. CIT(A), we do not find any reason to interfere with the findings of the ld. CIT(A). - Decided against revenue.

Issues:
1. Tax liability on payments made to agents of Foreign Shipping Companies.
2. Applicability of TDS under section 194C on payments to Indian subsidiaries of foreign shipping companies.
3. Validity of LTDC u/s. 197 issued in the name of the main/principal company.
4. Interpretation of CBDT Circular No. 723 dated 19.09.1995.

Analysis:
1. The appeal concerned the tax liability on payments made to agents of Foreign Shipping Companies. The Revenue contended that the Assessee should have deducted tax on payments made to resident tax entities, even if they are subsidiaries of foreign companies. The CIT(A) held that the payments to agents of foreign shipping companies are covered under section 172 and exempt from TDS. The Tribunal upheld the CIT(A)'s decision, citing CBDT Circular No. 723, which clarifies the applicability of section 172 over section 194C in such cases.

2. The issue of TDS applicability under section 194C on payments to Indian subsidiaries of foreign shipping companies was raised. The Assessing Officer treated the Assessee as an assessee in default for not deducting TDS on such payments. However, the Assessee argued that section 194C does not apply as the payments were made to agents of foreign shipping companies. The CIT(A) agreed with the Assessee's interpretation, leading to the dismissal of the Revenue's appeal by the Tribunal.

3. The validity of LTDC u/s. 197 issued in the name of the main/principal company was questioned. The Revenue sought to hold the Assessee liable for TDS on payments made to subsidiaries/agents of foreign shipping companies. However, the CIT(A) ruled in favor of the Assessee based on the provisions of section 172 and the CBDT Circular No. 723. The Tribunal affirmed the CIT(A)'s decision, emphasizing the Circular's guidance on the matter.

4. The interpretation of CBDT Circular No. 723 dated 19.09.1995 played a crucial role in the judgment. The Circular clarified that section 172 applies to payments made to agents of foreign shipping companies, exempting them from TDS under section 194C. The Tribunal relied on this Circular to support the CIT(A)'s decision, ultimately dismissing the Revenue's appeal. The judgment highlighted the significance of Circulars in interpreting tax laws and determining tax liabilities in specific scenarios.

In conclusion, the Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal regarding the tax liability on payments made to agents of Foreign Shipping Companies. The judgment emphasized the importance of relevant Circulars in interpreting tax laws and determining TDS applicability in specific situations, providing clarity on the matter for future reference.

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