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2012 (10) TMI 662 - AT - Income TaxAssessment - representative assessee - Double assessment business of transportation of coal by time chartering of vessels - assessee had availed the services of vessels owned by Foreign Shipping Companies (FSC), as well - assessee had paid hire charges for engaging those vessels - FSCs have not filed any return for the income accruing and arising in India - AO treated the assessee-company as representative assessee under sec. 163 of the Act Held that - Tax has been paid under sec. 172, thereby the FSCs have discharged their liabilities towards Indian income-tax - When the FSCs themselves have discharged their liabilities towards tax by complying with the provisions of sec. 172, there is no question of any further liability in their hands - there is no justification in making the assessment again in the hands of the assessee company in the status of representative assessee , which tantamounts to double assessment, which is not permissible under the law - payment of tax made by the FSCs. under sec. 172 tantamounts to discharging of tax liability of those companies and there is no reason why those companies again be assessed - When the principal itself does not make any liability, the agent cannot be fastened with any liability - appeal filed by the assessee is allowed
Issues:
1. Assessment of tax liability on hire charges paid to Foreign Shipping Companies (FSCs). 2. Treatment of assessee as 'representative assessee' under sec. 163 of the Income-tax Act, 1961. 3. Applicability of Double Taxation Avoidance Agreement (DTAA) in determining tax liability. 4. Consideration of previous ITAT judgments in similar cases. 5. Rectification petition under sec. 154 for alleged mistakes in the order. Issue 1: Assessment of Tax Liability on Hire Charges to FSCs: The assessing authority applied DTAA provisions to levy tax on hire charges paid to FSCs, treating them as 'royalty'. However, the ITAT Chennai 'D' Bench ruled that payments to FSCs were not 'royalty', as they were for the use of services and not for the use of industrial or commercial equipment. The Tribunal emphasized that the payment was covered by sec. 172 of the Act, which deals with tax on foreign ships leaving Indian ports. Since the FSCs had already paid tax under sec. 172, there was no justification for double assessment, and the tax liability in the hands of the assessee was cancelled. Issue 2: Treatment as 'Representative Assessee' under Sec. 163: The Commissioner of Income-tax (Appeals) upheld the assessing authority's decision to treat the assessee as a 'representative assessee' under sec. 163. However, the ITAT Chennai 'D' Bench's judgment clarified that being a 'representative assessee' did not automatically imply tax liability, especially when the FSCs had already fulfilled their tax obligations under sec. 172. The Tribunal highlighted that the principal (FSCs) discharging tax liability meant the agent (assessee) could not be held liable again, leading to the cancellation of the assessment. Issue 3: Applicability of DTAA and Previous ITAT Judgments: The assessee argued that the DTAA provisions should have been applied correctly, especially considering the ITAT's decision in the assessee's own case for the same assessment year. The ITAT Chennai 'D' Bench's ruling, which clarified that the payments to FSCs were not 'royalty', aligned with the DTAA provisions and previous judgments. The Tribunal emphasized that sec. 172 applied in this case, not sec. 195, and the tax liability had been discharged by the FSCs under sec. 172, eliminating the need for further assessment. Issue 4: Consideration of Previous ITAT Judgments: The Tribunal considered the ITAT Chennai 'D' Bench's judgment in ITA Nos. 1206 & 779/Mds/2011, where it was established that payments to FSCs were not 'royalty'. This judgment was crucial in determining that the hire charges were not subject to taxation under sec. 195, as the payments were for services provided by the FSCs and not for the use of equipment. The Tribunal's detailed analysis of the nature of payments and the legal provisions supported the assessee's position. Issue 5: Rectification Petition under Sec. 154: The assessee filed a petition for rectification, citing the ITAT Chennai 'D' Bench's order, which was not considered by the Commissioner (Appeals). The Commissioner rejected the petition, stating that all relevant Tribunal orders had been reviewed. However, the subsequent appeal raised valid grounds, including the pending appeal against the section 163 order, emphasizing the need to resolve issues regarding 'representative assessee' status before determining taxability. The rectification petition highlighted discrepancies in the application of judgments and the importance of considering factual differences in assessments. In conclusion, the ITAT Chennai's judgment in this case emphasized the correct application of tax provisions, the distinction between 'royalty' and service payments, and the implications of being a 'representative assessee'. The decision underscored the importance of aligning assessments with legal provisions, DTAA requirements, and previous judicial interpretations to ensure fair and accurate tax liability determinations.
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