2009 (12) TMI 96 - HC - Income Tax

Applicability of Section 44B Demurrage earned chargeability - The assessee, a non resident company filed its return of income relating to the assessment year 1993-94 on 31.12.1993 admitting an income of Rs.4,74,83,480/-. The return has been processed under section 143(1)(a) of the Act and intimation to that effect was sent to the assessee on 31.01.1994. Consequently notice under section 143(2) of the Act was issued to the assessee posting the case for hearing. The assessee has claimed that demurrage earned is not taxable. held that - Section 44B of the Act, which is a special provision for computing profits and gains of shipping business in the case of non-residents, under the Explanation that was added by the Finance Act, 1997 with effect from April 1, 1976, expressly provides that demurrage charges or handling charges or any other amount of similar nature shall be regarded as the part of the amount paid or payable to the person engaged in the business of operation of ships on account of the carriage of passengers, livestock, mail or goods shipped at any port in India decided in favor of revenue.

Summary

Issues:
Appeal against the order of the Income Tax Appellate Tribunal regarding demurrage charges not forming part of income.

Analysis:
The High Court of Madras heard an appeal filed under section 260A of the Income Tax Act against the decision of the Income Tax Appellate Tribunal. The appeal questioned whether demurrage charges received by the assessee should be considered as part of its income for the assessment year 1993-94. The assessee, a non-resident company, contended that demurrage earned should not be taxable based on a previous decision by the Tribunal. However, the department included the demurrage charges in the assessment, leading to an appeal. The Commissioner of Income Tax (Appeals) sided with the assessee, but the revenue challenged this decision before the Tribunal. The Tribunal, in line with a previous court ruling, held that demurrage charges should be included in the total income. The High Court referred to a similar case where the Explanation to section 44B of the Act mandated the inclusion of demurrage charges in the income of non-resident shipping businesses. Consequently, the court ruled in favor of the revenue, allowing the appeal and rejecting the assessee's claim. The judgment was delivered by K.Raviraja Pandian, J. and M.M.Sundresh, J. on 15.12.2009, with no costs awarded.

This judgment primarily revolved around the interpretation of the Income Tax Act concerning the taxation of demurrage charges received by a non-resident company. The court analyzed whether such charges should be considered as part of the company's income for the assessment year 1993-94. The assessee argued that demurrage earned should not be taxable based on previous Tribunal decisions, while the revenue department contended that the charges should be included in the assessment. The Commissioner of Income Tax (Appeals) initially supported the assessee's position, leading to the revenue's appeal to the Tribunal. The Tribunal's decision, consistent with a prior court ruling, favored the inclusion of demurrage charges in the total income.

The court referred to a relevant case involving the Explanation to section 44B of the Act, which specified that demurrage charges in the shipping business of non-residents should be part of their income. Citing this precedent, the High Court ruled in favor of the revenue, overturning the Tribunal's decision and dismissing the assessee's claim. The judgment, delivered by K.Raviraja Pandian, J. and M.M.Sundresh, J., concluded on 15.12.2009, with no costs imposed.