The Rajkot Bench of the Income Tax Appeal Tribunal (ITAT) has ruled that no liability is incurred for the payment of income tax by the non-resident who receives the payment of income tax. time charter.
The assessee, M/s. Terapanth Foods Limited is engaged in the manufacture of free flowing refined iodized salt and the trading of salt and iron ore. The person being assessed filed his tax return declaring a total income of “nil”.
According to the tax return, the total gross income which was reduced to zero after requesting compensation for losses carried forward from A.Ys. 1999-2000 and 2000-2001. The income tax return was processed under section 143(1) of the Income Tax Act 1961 on 24.08.2006.
Subsequently, the matter was selected for careful assessment and a statutory notice under section 143(2) of the Act was issued. In response to the formal notice, Ld. AR of assessee attended the proceedings and provided details. The assessor observed that the assessee showed turnover of Rs.38,26,34,257/- and net profit of Rs.83,89,524/- as per the Companies Act. The assessee has had their books of accounts audited in accordance with Section 44AB of the Act.
The Assessing Officer further observed that the assessee had paid vessel rental fees to non-residents and that no TDS had been paid by him on these payments. Since the assessee did not deduct tax, a show cause notice was issued to the assessee. In response to the show cause notice, the assessee provided a response.
The Valuation Officer disallowed the expense of renting vessels on a time charter basis to non-residents under Section 40(a)(i) of the Act amounting to Rs Rs.2,16,09,181/- . The appraising officer further waived Rs.15,583/- in respect of the weather report fee which was provided by a UK company to the appraiser.
The coram of Accounting Member, Waseem Ahmed and Judicial Member, Suchitra Kamble, noted that the CIT(A) categorically mentioned that Section 195 of the Act would only apply if a payment is made, which is chargeable under the Income Tax Act 1961. gave no reason as to why the tax liability under Section 172 of the Act does not cover time charter of vessels for which payment is made to non-residents. The Assessing Officer totally ignored the NOCs issued by the ministry allowing the vessel to sail into the Indian port as the payment is for the time charter. The provisions of Section 172 of the Act have in no way indicated that there is any obligation to pay tax on such receipts by non-resident beneficiaries. In this case, the chartered vessel for which payment was made to a non-resident. In accordance with Section 172 on Tariffs, no liability is incurred for the payment of tax by the non-resident who receives payment for the time charter. The ld. DR could not find any anomaly in the order of CIT(A).
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