Our foreign shipping client elected under section 172(7) for a regular assessment and is now getting a refund. The Department says no interest is payable on it because of an old Board circular. Is that circular still good?
It is not. Circular No. 9/2001 dated 9 July 2001 withdrew Circular No. 730 dated 14 December 1995 as "no longer legally tenable" in the light of the Supreme Court's decision in A.S. Glittre D/5 I/S Garonne v. CIT, and clarified that on a regular assessment under s.172(7) the non-resident assessee is liable to pay interest under sections 234B and 234C and is also entitled to receive interest under s.244A, as the case may be. Circular No. 730 had said the opposite: that an assessee exercising the s.172(7) option was neither liable to interest under ss.234B and 234C nor entitled to interest under s.244A.
Decided by the CBDT Circulars & Instructions (Not applicable — Central Board of Direct Taxes circular) on 2001-07-09, reported as Circular No. 9/2001, dated 9-7-2001; cross-referred in the footnotes to s.172 on the departmental pages, alongside the Circular No. 730, dated 14-12-1995 which it withdraws. It bears on section 172, section 172(3), section 172(4), section 172(7), section 234B, section 234C, section 244A, section 143(3) of the Income Tax Act 1961, in Presumptive Taxation & Audit, Refunds, Interest & Condonation, Demand, Recovery & Stay and Assessment & Scrutiny matters.
The election under s.172(7) is usually presented to a client as a one-way benefit — pay less if the year's real income is lower. This circular is the reason it is not. Once the Board accepts, as it does here, that the payments under s.172(3)/(4) are at par with advance tax instalments and that the s.172(7) assessment is a regular assessment, the advance-tax machinery attaches in both directions: shortfall attracts interest under s.234B and deferment under s.234C, and excess earns interest under s.244A. That is exactly the reasoning in Glittre, which held that in construing the legal fiction in s.172(7) all the consequences flowing from it must be assumed, and the Board says so in terms at paragraph 4. Two practical consequences. First, the election has to be modelled before it is made, on the full liability including interest, not on tax alone. Second, where a client has already been assessed under s.172(7) and refused interest on a refund on the strength of Circular No. 730, the answer is that the circular was withdrawn on 9 July 2001. Note also what the circular records about the mechanics of the summary levy at its paragraph 1: every time a ship belonging to or chartered by a non-resident makes a voyage from an Indian port, 7.5 per cent of the amount paid or payable for the carriage is deemed to be income taxed at the rate applicable to a foreign company, assessment and payment are to be made before port clearance, and the exception is that in suitable cases the ship may leave provided satisfactory arrangements are made for filing and payment within thirty days of departure.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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The circular, as reproduced in the Bombay High Court Full Bench judgment of 5 February 2016, reads: "1. The Board had earlier issued Circular No. 730 regarding treatment of tax paid under section 172(3) by a non-resident engaged in the shipping business. Under the provisions of section 172, every time a ship belonging to or chartered by a non-resident makes a voyage from a port in India, carrying passengers, livestock, mail or goods shipped at a port in India, 7.5 per cent of the amount paid or payable on account of the carriage of the passengers etc. is deemed as the income and tax is levied on such income at a rate applicable to a foreign company. The assessment and the payment is to be made before the ship is granted the port clearance. The exception is that, in suitable cases the ship may be allowed to leave provided satisfactory arrangements are made to ensure that the return of income if filed and payment of tax is made within 30 days of the departure of the ship. 2. Under the provisions of section 172(7), the non-resident owner or charterer is allowed an option to be assessed on his total income of the previous year in accordance with other provisions of the Act. When such option is exercised and an assessment is made accurately, the tax already paid under the provisions of section 172(4) by the non-resident owner or charterer would be treated as tax paid in advance for that assessment year before determining the amount of tax finally due. 3. The question that arose for consideration of the Board at the time of issue of Circular No. 730 was 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 legally tenable and is, therefore, withdrawn. It is clarified that in case of regular assessment under section 172(7), the non-resident assessee is liable to pay interest under sections 234B and 234C and also entitled to receive interest under section 244A of the Income-tax Act, 1961 as the case may be."
Circular No. 730 dated 14 December 1995 is withdrawn as no longer legally tenable following A.S. Glittre. On a regular assessment made under s.143(3) read with s.172(7), the non-resident assessee is liable to pay interest under sections 234B and 234C and is also entitled to receive interest under s.244A, as the case may be, because the tax paid under s.172(3)/(4) is at par with advance tax instalments.
Not applicable in the judicial sense. The Board's stated route is the Supreme Court's holding in A.S. Glittre that payment of tax under s.172(3)/(4) is at par with advance tax instalments, from which it follows that the advance-tax machinery, including both the interest charged for shortfall and the interest paid on refund, applies to a s.172(7) regular assessment.
It is clarified that in case of regular assessment under section 172(7), the non-resident assessee is liable to pay interest under sections 234B and 234C and also entitled to receive interest under section 244A of the Income-tax Act, 1961 as the case may be.
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Handle my notice → Ask a CA on WhatsAppIt is not. Circular No. 9/2001 dated 9 July 2001 withdrew Circular No. 730 dated 14 December 1995 as "no longer legally tenable" in the light of the Supreme Court's decision in A.S. Glittre D/5 I/S Garonne v. CIT, and clarified that on a regular assessment under s.172(7) the non-resident assessee is liable to pay interest under sections 234B and 234C and is also entitled to receive interest under s.244A, as the case may be. Circular No. 730 had said the opposite: that an assessee exercising the s.172(7) option was neither liable to interest under ss.234B and 234C nor entitled to interest under s.244A. This was decided by the CBDT Circulars & Instructions (Not applicable — Central Board of Direct Taxes circular) and bears on section 172, section 172(3), section 172(4), section 172(7), section 234B, section 234C, section 244A, section 143(3) of the Income Tax Act 1961. It is reported as Circular No. 9/2001, dated 9-7-2001; cross-referred in the footnotes to s.172 on the departmental pages, alongside the Circular No. 730, dated 14-12-1995 which it withdraws. The election under s.172(7) is usually presented to a client as a one-way benefit — pay less if the year's real income is lower. This circular is the reason it is not. Once the Board accepts, as it does here, that the payments under s.172(3)/(4) are at par with advance tax instalments and that the s.172(7) assessment is a regular assessment, the advance-tax machinery attaches in both directions: shortfall attracts interest under s.234B and deferment under s.234C, and excess earns interest under s.244A. That is exactly the reasoning in Glittre, which held that in construing the legal fiction in s.172(7) all the consequences flowing from it must be assumed, and the Board says so in terms at paragraph 4. Two practical consequences. First, the election has to be modelled before it is made, on the full liability including interest, not on tax alone. Second, where a client has already been assessed under s.172(7) and refused interest on a refund on the strength of Circular No. 730, the answer is that the circular was withdrawn on 9 July 2001. Note also what the circular records about the mechanics of the summary levy at its paragraph 1: every time a ship belonging to or chartered by a non-resident makes a voyage from an Indian port, 7.5 per cent of the amount paid or payable for the carriage is deemed to be income taxed at the rate applicable to a foreign company, assessment and payment are to be made before port clearance, and the exception is that in suitable cases the ship may leave provided satisfactory arrangements are made for filing and payment within thirty days of departure. If it applies to you, the first step is this: Before electing under s.172(7), compute the whole exposure — tax plus interest under ss.234B and 234C — and compare it with the s.172(4) levy already paid. The election is not costless.
The circular, as reproduced in the Bombay High Court Full Bench judgment of 5 February 2016, reads: "1. The Board had earlier issued Circular No. 730 regarding treatment of tax paid under section 172(3) by a non-resident engaged in the shipping business. Under the provisions of section 172, every time a ship belonging to or chartered by a non-resident makes a voyage from a port in India, carrying passengers, livestock, mail or goods shipped at a port in India, 7.5 per cent of the amount paid or payable on account of the carriage of the passengers etc. is deemed as the income and tax is levied on such income at a rate applicable to a foreign company. The assessment and the payment is to be made before the ship is granted the port clearance. The exception is that, in suitable cases the ship may be allowed to leave provided satisfactory arrangements are made to ensure that the return of income if filed and payment of tax is made within 30 days of the departure of the ship. 2. Under the provisions of section 172(7), the non-resident owner or charterer is allowed an option to be assessed on his total income of the previous year in accordance with other provisions of the Act. When such option is exercised and an assessment is made accurately, the tax already paid under the provisions of section 172(4) by the non-resident owner or charterer would be treated as tax paid in advance for that assessment year before determining the amount of tax finally due. 3. The question that arose for consideration of the Board at the time of issue of Circular No. 730 was 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 legally tenable and is, therefore, withdrawn. It is clarified that in case of regular assessment under section 172(7), the non-resident assessee is liable to pay interest under sections 234B and 234C and also entitled to receive interest under section 244A of the Income-tax Act, 1961 as the case may be." The matter was decided on 2001-07-09 by the CBDT Circulars & Instructions (Not applicable — Central Board of Direct Taxes circular). On those facts the CBDT Circulars & Instructions held as follows. Circular No. 730 dated 14 December 1995 is withdrawn as no longer legally tenable following A.S. Glittre. On a regular assessment made under s.143(3) read with s.172(7), the non-resident assessee is liable to pay interest under sections 234B and 234C and is also entitled to receive interest under s.244A, as the case may be, because the tax paid under s.172(3)/(4) is at par with advance tax instalments.
Not applicable in the judicial sense. The Board's stated route is the Supreme Court's holding in A.S. Glittre that payment of tax under s.172(3)/(4) is at par with advance tax instalments, from which it follows that the advance-tax machinery, including both the interest charged for shortfall and the interest paid on refund, applies to a s.172(7) regular assessment. In the words reproduced by the source cited on this page: "It is clarified that in case of regular assessment under section 172(7), the non-resident assessee is liable to pay interest under sections 234B and 234C and also entitled to receive interest under section 244A of the Income-tax Act, 1961 as the case may be." The decision followed or applied A.S. Glittre D/5 I/S Garonne v. CIT [1997] 225 ITR 739 (SC) — relied upon by the Board as the reason for withdrawing Circular No. 730.
It was decided by the CBDT Circulars & Instructions on 2001-07-09 and is reported as Circular No. 9/2001, dated 9-7-2001; cross-referred in the footnotes to s.172 on the departmental pages, alongside the Circular No. 730, dated 14-12-1995 which it withdraws. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 172, section 172(3), section 172(4), section 172(7), section 234B, section 234C, section 244A, section 143(3), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Circular No. 730 dated 14 December 1995 is withdrawn as no longer legally tenable following A.S. Glittre. On a regular assessment made under s.143(3) read with s.172(7), the non-resident assessee is liable to pay interest under sections 234B and 234C and is also entitled to receive interest under s.244A, as the case may be, because the tax paid under s.172(3)/(4) is at par with advance tax instalments. It arises in Presumptive Taxation & Audit, Refunds, Interest & Condonation, Demand, Recovery & Stay and Assessment & Scrutiny matters, on section 172, section 172(3), section 172(4), section 172(7), section 234B, section 234C, section 244A, section 143(3) of the Income Tax Act 1961, and was decided by Not applicable — Central Board of Direct Taxes circular. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If a refund on a s.172(7) assessment has been made without interest, claim interest under s.244A and cite Circular No. 9/2001 by number and date; if the officer relies on Circular No. 730, point out that it was withdrawn. Take the Supreme Court decision in A.S. Glittre together with the circular. The Board's position rests on it, so the two travel as a pair. Where the ship must sail before assessment, use the s.172(3) proviso route the circular describes — satisfactory arrangements plus filing and payment within thirty days of departure — rather than delaying the vessel. Do not assume the interest sections named in older material are still the right ones. The circular itself was issued to correct an earlier Board position, and it is the later instrument that governs.
Still good law. The circular is cross-referred on the departmental footnote list to s.172 as printed on the Year 2010 edition of that page, and it was reproduced and treated as governing by the Bombay High Court in 2016 and by the Cochin Tribunal in 2007. I did not search for any later circular superseding it and make no claim that none exists. Note that the circular's own history is a caution: it withdrew a Board circular of 1995 that had stated the opposite, so the Board has changed position in this area once already. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
I could NOT retrieve this circular from a departmental URL; I had no web-search budget left with which to locate the departmental path, and a later pass should begin there. I read it instead reproduced verbatim inside two independent judgments and compared the two reproductions: the Bombay High Court Full Bench in CIT v. V.S. Dempo & Co. Pvt. Ltd. (5 February 2016), which sets it out immediately before its paragraph 36 and closes the reproduction with the words "Circular No. 9/2001, dated 9-7-2001"; and the Cochin Bench of the Tribunal in ACIT v. Norasia Lines (Malta) Ltd. (5 March 2007). The two reproductions of paragraphs 4 and 5 agree in substance and differ only in trivial particulars — the Bombay reproduction reads "in case of regular assessment under section 172(7)" and "the Income-tax Act, 1961", the Cochin reproduction "in case of a regular assessment under Section 172(7)" and "the IT Act, 1961". I have quoted the Bombay reproduction and flag the variance rather than silently choosing between them. The Bombay reproduction carries a leading number "916." above the heading; that is a commercial digest's paragraph number appearing in the text the Court copied, not part of the circular. The number and date of the circular, and of the withdrawn Circular No. 730 dated 14-12-1995, are independently confirmed by the footnote lists printed on the departmental s.172 pages, which cross-refer to "Circular No. 730, dated 14-12-1995" and "Circular No. 9/2001, dated 9-7-2001". 'decided_on' is the date of the circular. 'bench' is inapplicable; 'favours' is left null because the circular cuts both ways — it restores the refund interest but also fastens ss.234B and 234C liability on the electing non-resident. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Circular No. 730 dated 14 December 1995 is withdrawn as no longer legally tenable following A.S. Glittre. On a regular assessment made under s.143(3) read with s.172(7), the non-resident assessee is liable to pay interest under sections 234B and 234C and is also entitled to receive interest under s.244A, as the case may be, because the tax paid under s.172(3)/(4) is at par with advance tax instalments.
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