Immediate and deferred rebates. - Income Tax - 1162/CBDT

INSTRUCTION NO. 1162/CBDT Dated : April 6, 1978 Section(s) Referred: 44B ,172 Statute: Income - Tax Act, 1961 Representations have been received by the Board that while computing income of non-resident shipping companies the immediate and deferred rebates paid by some of these companies should be allowed as deductions from their gross earnings before applying the percentage of 7-1/2% specified in sec.44B of the Act. 2. The question of allowing both immediate and deferred rebates has been examined by the Board in consultation with the Ministry of Law. Immediate rebate is allowed on the basic freight at the time of collecting the freight from the shippers. It is only the balance amount after such deduction that is paid over to the shipping company. This immediate rebate may, therefore be deducted from the gross freight for purposes of sec.44B. 3. As regards the deferred rebate however the position is different. It is allowed to certain shipping companies which are members of a particular liner conference at a fixed percentage subject to fulfilment of certain conditions. Usually the following conditions are to be fulfilled for the allowance of deferred rebate:- (i) that the shippers should give the lines their entire support (ii) they should refrain from participating directly or indirectly in any arrangements relating to the carriage of cargo by any vessel not operated by one of the lines and (iii) they should refrain from acting as agents for the competitors of the lines in respect of the cargo. Thus the payment on account of deferred rebate could more appropriately be characterised as an expenditure incurred by the shipping companies for purposes of their business. Accordingly no deduction for the deferred rebate should be allowed.