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TMI Blog2016 (6) TMI 634X X X X Extracts X X X X X X X X Extracts X X X X ..... he agent acted on behalf of the nonresident ship-owner or charterer, he steps into the shoes of the principal and, accordingly, the provisions of section 172 shall apply and those of sections 194C and 195 will not apply. - Decided in favour of assessee Non deduction of tax out of dividend by transfer of funds by the assessee to its sister concerns by way of loans and advances - Held that:- As in ‘MTAR Technologies (P) Ltd. vs. ACIT’ (2010 (4) TMI 871 - ITAT HYDERABAD ), it has been held that payment by a company to a nonshareholder does not require TDS under section 194 and in such a case, the company/assessee cannot be held to be in default u/s 201 of the Act so as to attract interest u/s 201(1A) thereof. While holding so, it was observed that u/s 150 of the Companies Act, every company is expected to maintain a register of shareholders, whereas a company is not obliged to maintain a register wherein details of such concerns, as to which provisions of section 2(22)(e) of the Act apply, may be kept; and that so, that when the payment is made to a non shareholder, it is impossible for the payer company to ascertain whether it will attract the provisions of section 2(22)(e) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 206C(IA) and had wrongly raised a demand of 1,642/- and ₹ 1,182/- u/s 201(1) and 201(1A), respectively. 3. Ground Nos. 3 4 are not pressed. Rejected as not pressed. 4. Ground No. 1 is general. 5. Apropos Ground no.2, the AO noted that it was the observation of the auditors of the assessee that the assessee had not deducted tax at source in some of such payments, which had been made to the contractors, custom agents, lease rent charges etc., as under: Nature of expenses Amount of payment a. Shipping expenses M/s. Worldwide Container Shipping Services Rs.1,00,000/- M/s. Venus Clearing ₹ 21,712/- M/s. IAL ₹ 75,762/- M/s. R.K. Shipping ₹ 68,846/- M/s. S.K. Shipping ₹ 46,013/- M/s. LTA Worldwide ₹ 40,101/- b. Payments of Rajkot Branch: i.) Job Work ₹ 91,620/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding exports using non-resident shipping call for TDS. 11. Section 172 of the Act regulates the procedure for assessing the income of non-resident shipping. 12. Section 172(2) reads as follows: Where such a ship carries ..goods shipped at a port in India, seven and half percent of the amount paid or payable on account of such carriage to the owner or the charterer or to any person on his behalf, whether that amount is paid or payable in or out of India, shall be deemed to be income accruing in India to the owner or charterer on account of such carriage. 13. Section 172(6) is as follows: A port clearance shall not be granted to the ship until the Collector of Customs or other officer duly authorized to grant the same, is satisfied that the tax assessable under this section has been duly paid or that satisfactory arrangements have been made for the payment thereof. 14. According to section 172(8): For the purpose of this section, the amount referred to in sub-section (2) shall include the amount paid or payable by way of demurrage charge or handling charge or any other amount of similar nature . 15. From the above, it is clear that in case of shippi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of funds by the assessee to its sister concerns by way of loans and advances. 19. The AO observed that as per section 2(22)(e) of the Act, dividend income includes any payment by a company, not being a company in which the public are substantially interested of any sum made after 31.05.1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares holding not less than ten percent of the voting power, or to any concern, in which such shareholder is a member or a partner and in which he has a substantial interest, or any payment by any such company on behalf or for the individual benefit of any such shareholder to the extent to which the company in either case possesses accumulated profits. The AO asked the assessee as to why, as such, it should not be treated as an assessee in default for nondeduction of tax at source out of deemed dividend under the provisions of section 2(22)(e) of the Act, as the partners of the sister concerns were substantial shareholders and had substantial interest. The assessee explained that the company had business dealings with its sister concerns and so, the transfer of funds could not be termed as dividen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain a register wherein details of such concerns, as to which provisions of section 2(22)(e) of the Act apply, may be kept; and that so, that when the payment is made to a non shareholder, it is impossible for the payer company to ascertain whether it will attract the provisions of section 2(22)(e) of the Act or not and it is, therefore, that the law does not expect the payer company to deduct TDS when payment is made to a non-shareholder; that this is the reason why the law expressly provides for TDS requirements only when payment is made to a non-shareholder; that payment to a shareholder would cover both normal dividend as well as deemed dividend; that otherwise also, the deemed dividend will be taxed in the hands of the shareholder and not in the hands of the nonITA shareholder payee; that therefore, section 194 of the Act is synchronized with the requirement under sections 150 and 206 of the Companies Act; and that accordingly, the provisions of section 194C of the Act are not applicable in the hands of the recipient, due to which, the provisions of sections 201(1) and 201(1A) of the Act cannot be applied. 26. The ld. CIT(A), it is seen, has correctly placed reliance on MT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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