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TMI Blog2016 (2) TMI 308X X X X Extracts X X X X X X X X Extracts X X X X ..... rm “non-resident” means a person who is not a resident as per section 2(30) of the Income Tax Act and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily a resident within the meaning of clause (6)of section 6. The term “person” includes an individual, a HUF, a company, firm and every artificial juridical person not falling within any of the preceding sub-clauses of clause (31) of section 2. By section 2(23A), a foreign company is defined to mean a company which is not a domestic company. Hence, any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act not being income chargeable under the head “Salaries”, would have to deduct the tax thereon at the rates in force. - Income Tax Appeal No. 989 of 2015, Income Tax Appeal No. 991 of 2015, Income Tax Appeal No. 948 of 2015, Income Tax Appeal No. 957 of 2015, Income Tax Appeal No. 978 of 2015 - - - Dated:- 5-2-2016 - S. C. Dharmadhikari, R. D. Dhanuka And B. P. Colabawalla, J. For the Petitioner : Mr. J.D. Mistry, senior counsel with Ms. Fereshte Sethna, Mr.Mrunal Parekh, Ms. Khushb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction u/s 80-HHC of ₹ 12,78,82,552/-. The case was selected for scrutiny and notices u/s. 143(2) were issued to the assessee. Assessee, in response, filed details. The assessee declared other income at ₹ 9,67,50,252/-. The main item of this is interest income on Bank deposits and others. The basic issue which arises is whether the entire interest income as claimed by the assessee could be said to be business income, to which explanation (baa) to section 80HHC, is applicable or whether the said interest income is income from other sources. The assessee also claimed income received from 'Lease income', 'income from transfer of vessels', 'Barge freight', 'proceeds from other services' and 'miscellaneous income', as gross receipts received in the course of its business and therefore there is no question of applying Explanation (baa) to it. The assessee also charged the demurrage charges under the head export expenses to profit and loss account on which no tax has been deducted during the year under consideration. The Assessing Officer held that in view of section 40(a)(i) r/w section 195, the amount paid as demurrage charges are li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits of the business and not income from other sources ? (III) Whether the findings of the ITAT while restoring the issue of interest income to the file of A.O., to exclude 90% of 'net' interest income is valid in law. ? (IV) Whether in the facts and in the circumstances of the case, the ITAT is right in law in taking into account the 'interest on bank deposits', 'interest on intercorporate deposits', 'interest on debentures', and 'interest from sister concerns' and 'other interest' is forming the part of the head Profits and gains of business or profession ? (V) Whether the findings of the ITAT that the receipts on account of 'professional services' and 'proceeds electronic data processing' are not income falling within the exclusionary provisions of clause (baa) of Explanation to section 80HHC, is right in law ? (VI) Whether the findings of the ITAT, that 90% of the net income from receipts on account of 'stevedoring agency business' and 'travel agency business' are falling within the exclusive provision of clause (baa) of explanation to section 80HHC, is right in law ? (VII) Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that this decision requires reconsideration. In dealing with these contentions, the Division Bench in the order referring the question held as under : 8. The substantial question interalia which arose for consideration of this Court in Orient (Goa) (P) Ltd. (supra) was as under : (B) Whether on the facts and in the circumstances of the case, the assessee was entitled to claim deduction of the demurrage charges of ₹ 1,08,53,980/- paid to foreign company, without deducting tax on it, under s. 40(a)(i) of the IT Act, in view of the Circular No. 723 dt. 19th September 1995 [(1995) 128 CTR (St) 61], issued by CBDT? 9. The above question arose for consideration by this Court on the following facts : (a) M/s. Orient (Goa) (P) Ltd. (assessee) had for A.Y. 1997-98 declared an income of ₹ 2.10 crores. It had paid an amount of ₹ 1.08 crores as demurrage charges to a non-resident shipping company viz. M/s. Mitsui Co. Ltd. However as the assessee had not deducted tax at source on the demurrage charges paid, the Assessing Officer disallowed the expenditure of demurrage charges in view of Section 40(a)(i) of the Act. (b) In appeal, the CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case. The company from Japan viz., Mitsui Co. Ltd., Japan, recipient of demurrage amount is not before us. In other words, we are not examining the tax liability of the foreign company i.e., Mitsui Co. Ltd., Japan. Provisions of s. 172 are to apply notwithstanding anything contained in the other provisions of the Act. Therefore, in such cases, the provisions of ss. 194C and 195 relating to TDS, are not applicable. The recovery of tax is to be regulated for voyage undertaken from any port in India by a ship, under the provisions of s. 172. In this view, these observations of the learned Vice President of Tribunal have no concern with the factual aspect that it is a case of occasional shipping, pleaded or raised by assessee. There is no dispute about interpretation of s. 172 or s. 195. Crucial point is as to how s. 172 applies to the facts of the present case wherein the respondent assessee is an Indian company, incorporated under the provisions of Indian Companies Act, 1956. In our view, the learned Vice President of the Tribunal has recorded a perverse observation/finding in para 3 regarding application of ss. 44B and 172 of the Act 1961. 11. We are unable to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, an e-mail was sent on 26th November, 2015 and prior thereto, there was a message sent by i-phone requesting for rescheduling the hearing before the Full Bench. The learned advocate informed the Registry that the Department / Revenue has expressed its desire to appoint the Additional Solicitor General and, therefore, she would not be appearing before the Bench. Three weeks' time was sought for that purpose. 12. It is indeed unfortunate that when the Bench is constituted to resolve a conflict of opinion between two Division Bench judgments of this Court and answer a question of law that such requests are made by the Revenue. Since we had decided upon this date and with the consent of all the parties, it was not possible to reschedule the hearing and, therefore, this request was rejected. It is in these circumstances that we requested Mr. Mistri, learned senior counsel appearing for some of the assessees and desiring to address this Court that he must assist us in an overall manner. Meaning thereby, the perspective of both sides and on the legal provision and its interpretation ought to be placed before us. In all fairness, Mr. Mistri has taken us through the scheme of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's Goa Bench in Orient's case lays down the correct law. It must be read in its proper perspective and in the backdrop of the controversy before this Court. 16. For properly appreciating the contentions raised before us, it would be necessary to refer to the Income Tax Act, 1961. The arrangement of sections therein commencing from and divided into several Chapters would indicate that Chapter II titled Basis of charge is preceded by the preliminary provisions in Chapter I and which also contains some definitions. For the purposes of the Act and unless the context otherwise requires, the term income is defined in an inclusive manner. Section 2(24) contains that definition and the term includes all that is enumerated from section 2 clause (24)(i) to (xviii). The term resident is defined in section 2 clause (42) to mean a person who is resident in India within the meaning of section 6. The word tax is defined in section 2 clause (43) and in relation to the assessment year commencing on the first day of April, 1965, and any subsequent assessment means income tax chargeable under the provisions of this Act, prior to the aforesaid date. The term total income is define ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the words sixty days , occurring therein, the words one hundred and eighty-two days had been substituted. [Explanation 2.- For the purposes of this clause, in the case of an individual being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed.] (2) A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during the year the control and management of the affair is situated wholly outside India. (3) A company is said to be a resident in India in any previous year, if, - (i) it is an Indian company; or (ii) its place of effective management, in that year, is in India. Explanation. - For the purposes of this clause place of effective management means a place where key managements and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made. (4) Every other person is said to be resident in India in any previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of doubts declares that business connection shall include any business activity carried out through a person who, acting on behalf of the non-resident has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident or has no authority and, therefore, from a reading of this section together with the explanations, it is apparent as to income which is deemed to accrue or arise in India may or may not include such income which is not attributable to the operations carried out in India. Therefore, various categories of non-resident Indians and the income that they derive or may derive by control or through somebody who is a resident of India is, accordingly, dealt with. The other part of this section is not relevant for our purpose. We are also not concerned with insertion of section 9A by the Finance Act 2015 with effect from 1st April, 2016. 19. By Chapter III, incomes which do not form part of total income are dealt with. In that appears section 10 and the clauses thereof do not include the income specified therein in computing the total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be chargeable to income tax under this head and the clause thereof would indicate as to how the sub-headings of compensation, income derived by trade, professional or similar association from specific service performed for its members, profits on sale of a licence granted under the Imports and Exports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947, cash assistance, drawback or some other form in which any duty of customs or excise is repaid or repayable. We have, therefore, several such incomes which are derived by Duty Entitlement Pass Book Scheme or otherwise. We also have several incomes which are generated in the form of any benefit or perquisite whether convertible into money or not arising from business or the exercise of a profession, any sum whether received or receivable in cash or kind under an agreement for not carrying out any activity in relation to any business or not sharing any know-how, patent, copyright, trademark, licence, franchise etc. Income generated by way of any arrangement or understanding as also derived by rendering of any service received under a Keyman insurance policy are all part of section 28. The income referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of an assessee - (i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid [during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200] : Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub-section (1) of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. The following proviso shall be substituted for the existing proviso to sub-clause (i) of clause (a) of section 40 by the Finance (No. 2) Act, 2014, w.e.f 1-4-2015 : Provided that where in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 194J; (iv) work shall have the same meaning as in Explanation III to section 194C; [(v) rent shall have the same meaning as in clause (i) to the Explanation to section 194-I; (vi) royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;] (ib) [***]] [(ic) any sum paid on account of fringe benefit tax under Chapter XIIH;] (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. [Explanation 1.-For the removal of doubts, it is hereby declared that for the purposes of this subclause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.] [Explanation 2.-For the removal of doubts, it is hereby declared that for the purposes of this subclause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax under section 90A;] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has made effective arrangements to secure that tax shall be deducted at source from any payments made from the fund which are chargeable to tax under the head Salaries ; [(v) any tax actually paid by an employer referred to in clause (10CC) of section 10;] [(b) in the case of any firm assessable as such,- (i) any payment of salary, bonus, commission or remuneration, by whatever name called (hereinafter referred to as remuneration ) to any partner who is not a working partner; or (ii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is not authorised by, or is not in accordance with, the terms of the partnership deed; or (iii) any payment of remuneration to any partner who is a working partner, or of interest to any partner, which, in either case, is authorised by, and is in accordance with, the terms of the partnership deed, but which relates to any period (falling prior to the date of such partnership deed) for which such payment was not authorised by, or is not in accordance with, any earlier partnership deed, so, however, that the period of authorisation for such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any other person. Explanation 3.-For the purposes of this clause, book-profit means the net profit, as shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firm if such amount has been deducted while computing the net profit. Explanation 4.-For the purposes of this clause, working partner means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner;] (ba) in the case of an association of persons or body of individuals [other than a company or a co-operative society or a society registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India], any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such association or body to a member of such association or body. Explanation 1.-Where interest is paid by an association or body to any member thereof who has also paid interest to the association or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , unspecified royalty, fees for technical services or other sum chargeable under the Income Tax Act, which is payable outside India or in India to a non-resident, not being a company or to a foreign company on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid, will be covered by the prohibition enacted as above. 22. The proviso to this sub-clause (i) reveals that where in respect of such sum, tax has been deducted in any subsequent year or has been deducted during the previous year, but paid after the due date specified in sub-section (i) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. 23. Then section 40(a)(ia) refers to the thirty per cent of any sum payable on which tax is deductible at source under the same chapter as above and such tax has not been deducted or after deduction has not been paid. 24. We have reproduced the entire section for the simple reason that the amount mentioned in section 40(a)(i) shall not be deducted in case it is payable in India to a non-resident, not being a company or to a fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the obligation to pay tax. Payment for transfer of certain immovable property other than agricultural lands invites deduction of income-tax at source vide section 194IA. Then the fees for professional or technical service invites the same obligation by section 194J. Several other sections of this nature where amount is paid to a resident or the income is generated or earned by a resident would attract the deduction of tax at source. Section 194LC deals with income by way of interest from Indian company and where any income by way of interest referred to in sub-section (2) of this section is payable to a non-resident, being a company or to a foreign company by a specified company or business trust, the person responsible for making the payment at the time of credit of such income to the account of the payee or at the time of payment in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct the income-tax thereon at the rate of five percent. Therefore, the tax is to be deducted at source, the manner of its deduction and the time are specified so also the rate. After section 194LC and 194LD comes section 195 which reads as under: 195. (1) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under subsection (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1). (4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation. (5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ull amount paid or payable to the owner or charterer or any person on his behalf, on account of the carriage of all passengers, livestock, mail or goods shipped at that port since the last arrival of the ship thereat: Provided that where the [Assessing] Officer is satisfied that it is not possible for the master of the ship to furnish the return required by this sub-section before the departure of the ship from the port and provided the master of the ship has made satisfactory arrangements for the filing of the return and payment of the tax by any other person on his behalf, the [Assessing] Officer may, if the return is filed within thirty days of the departure of the ship, deem the filing of the return by the person so authorised by the master as sufficient compliance with this subsection. (4) On receipt of the return, the [Assessing] Officer shall assess the income referred to in sub-section (2) and determine the sum payable as tax thereon at the rate or rates [in force] applicable to the total income of a company which has not made the arrangements referred to in section 194 and such sum shall be payable by the master of the ship. [(4A) No order assessing the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Section 195 deals with other sums. It falls under Chapter XVII titled as Collection and Recovery Deduction at Source. It has several sub-headings styled as A-General, B-Deduction at Source, BB-Collection at source, C-Advance Payment of Tax, DCollection and Recovery, E-Tax Payable Under Provisional Assessment (which is deleted now) and F and G titled as Interest Chargeable in Certain Cases and Levy of Fee in Certain Cases. 32. In the case at hand, we are not concerned with deduction at source of tax on payment of salary, payment of accumulated balance due to an employee, interest on securities, dividends and such of the payments and incomes which are dealt with by section 194-A to 194-LD. We are concerned with a provision dealing with other sums. 33. A perusal thereof would indicate as to how any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest not being interest referred to in sections 194LB or 194LC or 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ) shall, at the time of credit of such income to the account of the payee or at the time of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that when a regular assessment is made under section 143(3), read with the provisions of section 172(7), whether such an assessee would liable to levy of interest under sections 234B and 234C or not. On the other hand, in case of a refund, the question of entitlement of interest under section 244A would also rise. The Board, vide Circular No. 730, dated 14-12- 1995 clarified that the assessee, who exercises his option under section 172(7) to get his total income assessed in accordance with the other provisions of the Act, is neither liable to pay interest under sections 234B and 234C, nor entitled to receive interest under section 244A of the Income-tax Act, 1961. 4. This issue has subsequently been discussed and decided by the Supreme Court in the case of A. S. Glittre D/5 I/S Garonne vs. CIT [1997] 225 ITR 739. It has been held that the payment of tax under section 172(3)/(4) is at par with advance tax instalments. Hence, in case of a regular assessment under section 172(7) the assessee is entitled to refund, as well as interest on such refund. 5. The Circular No. 730 issued by the Central Board of Direct Taxes on this issue is, under the circumstances, no longer lega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artners being personal expenses of the partners of the assessee-company. A notice under section 148 of the Act was issued by the Revenue to the assessee pursuant to which an order of assessment was passed by the Deputy Commissioner of Income-tax, Circle 1, Panaji. That came to be challenged before the Commissioner (Appeals), Goa. Before the First Appellate Authority, the ground regarding disallowance of foreign tour expenses was not pressed. However, before the First Appellate Authority, the disallowance made by the Assessing Officer under section 40(ai) was raised and the First Appellate Authority found the disallowance to be correct. This disallowance was directed to be deleted. In substance, therefore, the appeal succeeded. The Revenue challenged this order before the Income Tax Appellate Tribunal, in Appeal and which came to be dismissed. 40. Therefore, in paragraph 3 the contention of the Revenue was noted and it was urged that the assessee was under an obligation to deduct the tax in view of section 40(a)(i) in relation to the amount payable outside India. The assessee relied upon the non-obstante clause in section 172 (1) in meeting this contention. It was urged that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts are distinguishable. The ratio of this judgment also does not help the present assessee i.e. the respondent in this appeal. We have noticed the various dates in the cited judgment. We have also considered the definition of word demurrage to which our attention was invited by learned Senior Advocate Shri Usgaonkar. Learned Senior Advocate also invited our attention to dictionary meaning of the word demurrage (Black's Law Dictionary). 10. Section 172 of the Act 1961 is carefully considered by us. Chapter XV titles as Liability in Special cases . We have no concern with sections, starting from Section 159, till section 171 from this Chapter XV. Section 172 comes under sub-title H.- Profits of non-residents from occasional shipping business . Title of Section 172 is Shipping business of non-residents. For bringing a case under Chapter XV, H of the Act 1961, one has to establish a case of profits of non-residents from occasional shipping business. Non-resident is defined under section 2(30), as a person who is not a resident and for the purpose of Sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about interpretation of Section 172 or Section 195. Crucial point is as to how Section 172 applies to the facts of the present case wherein the respondent assessee is an Indian company, incorporated under the provisions of Indian Companies Act, 1956. In our view, the learned Vice President of the ITAT has recorded a perverse observation/finding in para 3 regarding application of Section 44B and 172 of the Act 1961. 11. We may notice that the Judgment of the learned Appellate Tribunal is unreasoned and cryptic one. This judgment runs in around 20 to 25 lines. We are not oblivious of the fact, that not the form, but substance is material. The learned appellate Tribunal seems to have referred to the Circular of Central Board of Direct Taxes, No.723 dated September 19, 1995. ([1995] 215 ITR (St.)116). 12. We have considered the submission of the learned Counsel appearing for the parties pertaining to the Circular No.723 dated 19.9.1995 by CBDT (Annexure C ). Section 119 empowers the Central Board of Direct Taxes to give instructions to subordinate authorities. We have considered Section 119 of the Act 1961. We have also perused the Circular Annexure C. This Circular seems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 172 did not have any application in relation to the respondent-assessee in the facts and circumstances of that case. However, in paragraph 10, the Division Bench accepted the legal position that section 172 would apply notwithstanding anything contained in the other provisions of the Act. Therefore, in such cases, the provisions of section 194C and 195 relating to tax deduction at source are not applicable. The Division Bench held that there is no dispute about interpretation of sections 172 or 195. The crucial point, according to the Bench, was how section 172 applies to the facts of the case before it wherein the respondent-assessee is an Indian company, incorporated under the provisions of the Indian Companies Act, 1956. 44. The legal provisions have been referred by us extensively only for the purpose of understanding the scheme of the Act. Section 40 deals with amounts not deductible. The amounts which cannot be deducted in computing the income chargeable under the head Profits and Gains of Business or Profession in the case of an assessee are set out in clause (a) and sub-clause (i) refers to any interest, royalty, fees for technical services or other sum chargeable u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rriding provision in section 172 will come to its assistance. 45. The shipping business of non-residents is an aspect dealt with by section 172. While considering the levy and recovery of tax in case of such business which is carried on with the aid of any ship belonging to or chartered by a non-resident which carries passengers etc. shipped at a port in India, then, it is to compute the tax and recover it in relation to such business of a non-resident that section 172 is incorporated in the Statute Book. We have found that there are special provisions for computing profits and gains for shipping business in the case ofa nonresident and enacted by section 44B which falls in Chapter IV Computation of Business Income. That section reads as under: 44B. (1) Notwithstanding anything to the contrary contained in sections 28 to 43A, in the case of an assessee, being a non-resident, engaged in the business of operation of ships, a sum equal to seven and a half per cent of the aggregate of the amounts specified in sub-section (2) shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gains of business or profession . (2) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 44B. Both provisions open with a non-obstante clause and whereas section 44B enacts special provisions for computing profits and gains of shipping business in case of non-residents section 172 dealing with shipping business of non-residents is enacted for the purpose of levy and recovery of tax in the case of any ship belonging to or chartered by a non-resident operated from India. These sections and particularly section 172 devise a scheme for levy and recovery of tax. The sub-sections of section 44B denote as to how the amounts paid to or payable would include demurrage charges or handling charges or any other amount of similar nature. The sub-sections of section 172 read together and harmoniously would reveal as to how the tax should be levied, computed, assessed and recovered. Therefore, there is no warrant in applying the provisions in chapter XVII for collection and recovery of the tax and its deduction at source vide section 195. 47. To our mind, the Division Bench judgment in Commissioner of Income-tax vs. Orient (Goa) Pvt. Ltd. seen in this light does not, with greatest respect, take into account the scheme and setting as understood above. There need not be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hargeable under the head Salaries , would have to deduct the tax thereon at the rates in force. 50. The view that we are taking is based on the enunciation and exposition of law by the Hon'ble Supreme Court of India, firstly in the case of Union of India vs. Gosalia Shipping (PVT.) Ltd. reported in (1978) 3 SCC 23. Insofar as section 172 of the IT Act as it stood then, its ambit and scope, the Hon'ble Supreme Court of India held as under:- ..... 3. Section 172 occurs in Chapter XV which is entitled Liability in special cases and the sub-heading of the section is Profits of nonresidents from occasional shipping business . It creates a tax liability in respect of occasional shipping by making a special provision for the levy and recovery of tax in the case of a ship belonging to or chartered by a non-resident which carries passengers, livestock, mail or goods shipped at a port in India. The object of the section is to ensure the levy and recovery of tax in the case of ships belonging to or chartered by non-residents. The section brings to tax the profits made by them from occasional shipping, by means of summary assessment in which one-sixth of the gross amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , KERALA-II reported in (1997) 9 SCC 546, once again, after reproduction of section 172 of the IT Act, the Hon'ble Supreme Court of India explained the scheme of the section in the following words:- 7. The Scheme of Section 172 of the Act appears to be this: Section 172(1) of the Act gives a right to the Income Tax Officer to levy and recover tax in the case of any ship belonging to a non-resident, in a summary manner, (ad hoc assessment) notwithstanding anything contained in the other provisions of the Act. It is an absolute right conferred on the assessing authority. The assessee has no right to object to the same. Normally, this will be assessment of the assessee for the year. But, under Section 172(7) of the Act a right is given to the assessee to claim before the expiry of the assessment year relevant to the previous year in which the date of departure of the ship from the Indian port falls, that an assessment, according to the provisions of the Act, in a regular manner be made. Thus, a right is given to the assessee to opt for a regular assessment although a rough and ready or a summary assessment has already been made under Section 172(4) of the Act. It is a val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flow from it unless prohibited by some other statutory provision. (emphasis supplied) So, necessarily all the provisions in the Act in respect of the payment of advance tax will apply. On effecting the regular assessment, if there is any excess payment made by the assessee, then the assessee would be entitled to the excess amount paid and also interest, for payments made in excess of the tax assessed. We are unable to appreciate the distinction drawn by the High Court between advance tax and payment in advance of the tax mentioned in Section 172(7) of the Act. We hold that the distinction so drawn has no basis. The High Court has furtehr held that the payment made under Section 172(4) of the Act is not a payment of advance tax within the meaning of the Act, as the tax under Section 172(4) of the Act is a payment on assessment and not a payment of advance tax under the Act. We are afraid that the High Court has failed to give due effect to the language employed in Section 172(7) of the Act and the scope of the legal fiction enshrined therein. The reasoning of the High Court is rather strained as the distinction drawn is without any substance or difference. Section 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Government in terms of Section 200 of the I.T. Act read with Rule 30 of the I.T. Rules 1962. Failure to deduct tax or failure to pay tax would also render a person liable to penalty under Section 201 read with Section 221 of the I.T. Act. In addition, he would also be liable under Section 201(1A) to pay simple interest at 12 per cent per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. 8. The most important expression in Section 195(1) consists of the words chargeable under the provisions of the Act . A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the I.T. Act. For instance, where there is no obligation on the part of the payer and no right to receive the sum by the recipient and that the payment does not arise out of any contract or obligation between the payer and the recipient but is made voluntarily, such payments cannot be regarded as income under the I.T. Act. 9. It may be noted that Section 195 contemplates not merely amounts, the whole of which are pure income payments, it also covers composite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to tax in India. The payer is bound to deduct TAS only if the tax is assessable in India. If tax is not so assessable, there is no question of TAS being deducted. [See : Vijay Ship Breaking Corporation and Others Vs. CIT 314 ITR 309] 14. One more aspect needs to be highlighted. Section 195 falls in Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of various provisions of Chapter XVII one finds use of different expressions, however, the expression sum chargeable under the provisions of the Act is used only in Section 195. For example, Section 194C casts an obligation to deduct TAS in respect of any sum paid to any resident . Similarly, Sections 194EE and 194F inter alia provide for deduction of tax in respect of any amount referred to in the specified provisions. In none of the provisions we find the expression sum chargeable under the provisions of the Act , which as stated above, is an expression used only in Section 195(1). Therefore, this Court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession, as stated above, do not find place in other Sections of Chapter XVII. It is in this sense that we hold that the I.T. Act constitutes one single integral inseparable Code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the I.T. Act. 18. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the I.T. Act by which a payer can obtain refund. Section 237 read with Section 199 implies that only the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words chargeable un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would not get the benefit of deduction if the assessee fails to deduct TAS in respect of payments outside India which are chargeable under the I.T. Act. This provision ensures effective compliance of Section 195 of the I.T. Act relating to tax deduction at source in respect of payments outside India in respect of royalties, fees or other sums chargeable under the I.T. Act. In a given case where the payer is an assessee he will definitely claim deduction under the I.T. Act for such remittance and on inquiry if the AO finds that the sums remitted outside India comes within the definition of royalty or fees for technical service or other sums chargeable under the I.T. Act then it would be open to the AO to disallow such claim for deduction. Similarly, vide Finance Act, 2008, w.e.f. 1.4.2008 sub-Section (6) has been inserted in Section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from 1.4.2008. It will not apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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