2009 (11) TMI 654 - AT - Income Tax

Summary

Issues Involved:
1. Whether the tax is deductible at source by the assessee on payments made to M/s. Star Cruises Management Ltd. (SCML) from the sale proceeds of cruise booking tickets.
2. Applicability of Board's Circular No. 23 dated 23-7-1969.
3. Taxability of income under section 5(2)(a) and section 44B of the Income-tax Act.
4. Validity of the orders u/s 201(1) and 201(1A) for failure to deduct tax.

Summary:

Issue 1: Tax Deductibility at Source
The Revenue challenged the CIT(A)'s decision that tax is not deductible at source on payments to SCML from the sale proceeds of cruise tickets booked by the assessee. The Assessing Officer (AO) had directed the assessee to deduct TDS, treating 7.5% as deemed profit u/s 44B of the Act. The CIT(A) concluded that the AO's direction to deduct tax and the consequential levy of tax and interest u/s 201(1) and 201(1A) was not justified. The Tribunal upheld the CIT(A)'s decision, noting that SCML, a foreign company, operates cruises in international waters without any connection to Indian ports, and the income from ticket sales in India is not taxable under section 5(2)(a) or section 44B.

Issue 2: Applicability of Circular No. 23
The CIT(A) applied Board's Circular No. 23 dated 23-7-1969, which limits the assessment of income arising from transactions secured through an agent in India to the profit attributable to the agent's services. The Tribunal agreed with the CIT(A) that the arm's length commission paid by SCML to the assessee extinguishes SCML's tax liability in India, as the relevant amount has already suffered tax in the hands of the assessee.

Issue 3: Taxability under Section 5(2)(a) and Section 44B
The Tribunal noted that SCML's income from cruise ticket sales in India does not accrue or arise in India under section 5(2)(a) and is not taxable under section 44B, as the cruises do not operate from Indian ports. The Tribunal emphasized that the income of a non-resident shipping company cannot be taxed in India unless the passengers travel from or to an Indian port.

Issue 4: Orders u/s 201(1) and 201(1A)
The Tribunal confirmed that the AO's orders u/s 201(1) and 201(1A) for failure to deduct tax were not justified, as the income from the sale of cruise tickets was not taxable in India. Consequently, the Tribunal dismissed the Revenue's appeals and the assessee's cross objections, which were only supporting the CIT(A)'s order and were deemed infructuous.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that the tax is not deductible at source on payments to SCML from the sale proceeds of cruise tickets, confirming that the income is not taxable in India under the relevant sections of the Income-tax Act and Board's Circular No. 23. All appeals by the Revenue and cross objections by the assessee were dismissed.