A foreign ship loaded our cargo at an Indian port and the Assessing Officer is demanding tax from the master before port clearance. What is the levy, what return has to be filed, is there any time limit on the officer, and can the owner ask instead to be assessed on his year's income?
Section 172 is a self-contained levy that operates voyage by voyage: where a ship belonging to or chartered by a non-resident carries passengers, livestock, mail or goods shipped at a port in India, s.172(2) deems 7.5 per cent of the amount paid or payable for that carriage — whether paid in or out of India — to be income accruing in India, and s.172(4) makes the tax payable by the master of the ship at the rate applicable to a company that has not made the arrangements referred to in s.194. The master must furnish a return under s.172(3) before the ship's departure, though the officer may accept a return filed within thirty days of departure by an authorised person where satisfactory arrangements have been made; s.172(6) withholds port clearance until the tax is paid or arrangements made; s.172(4A) bars any assessment order under s.172(4) after nine months from the end of the financial year in which the s.172(3) return is furnished; and s.172(7) lets the owner or charterer claim, before the expiry of the assessment year relevant to the previous year in which the date of departure falls, that an assessment be made of his total income under the other provisions of the Act, in which case the s.172 payments are treated as a payment in advance of the tax.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2007-04-01, reported as Income-tax Act, 1961, s.172, as printed on the departmental Year 2010 page and reproduced in extenso at para 29 of CIT v. V.S. Dempo & Co. Pvt. Ltd. (Bombay High Court, Full Bench, 5 February 2016). It bears on section 172, section 172(1), section 172(2), section 172(3), section 172(4), section 172(4A), section 172(5), section 172(6), section 172(7), section 172(8), section 44B, section 194, section 195 of the Income Tax Act 1961, in Presumptive Taxation & Audit, Assessment & Scrutiny and Demand, Recovery & Stay matters.
Five things in this section decide real money and are routinely missed. First, the base: s.172(8) expressly draws demurrage charge, handling charge "or any other amount of similar nature" into the amount on which the 7.5 per cent is computed, so a ship-owner who thinks only ocean freight is caught is wrong — that sub-section was inserted by the Finance Act 1997 with retrospective effect from 1 April 1976. Second, the words "whether that amount is paid or payable in or out of India" in s.172(2) mean the levy does not turn on where the freight is collected. Third, s.172(4A) is a limitation provision and it is the ground that wins a stale s.172 assessment outright: no order under s.172(4) may be made after nine months from the end of the financial year in which the s.172(3) return was furnished. It was inserted by the Finance Act 2007 with effect from 1 April 2007 and it does not appear at all on the older departmental editions of this section, which is why it is so often overlooked. Fourth, the s.172(7) election is a right of the owner or charterer, not of the master or the agent, and it is time-barred: it must be claimed before the expiry of the assessment year relevant to the previous year in which the date of departure from the Indian port falls. Fifth, the section carries a non-obstante clause in sub-section (1) — it applies "notwithstanding anything contained in the other provisions of this Act" — and that clause is the foundation of both the CBDT's position that ss.194C and 195 do not apply to payments covered by s.172 and of the Bombay High Court Full Bench's reading of s.172 alongside s.44B. Note finally where the section sits: the Supreme Court in A.S. Glittre recorded at para 4 that s.172 occurs in Chapter XV, Liability in Special Cases, under the sub-heading "Profits of non-residents from occasional shipping business", while the marginal heading of the section itself is "Shipping business of non-residents". The word "occasional" in the Chapter sub-heading is what distinguishes this summary voyage levy from the annual presumptive regime in s.44B.
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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As printed on the departmental Year 2010 page, section 172 reads: "172. (1) The provisions of this section shall, notwithstanding anything contained in the other provisions of this Act, apply for the purpose of the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a port in India. (2) Where such a ship carries passengers, livestock, mail or goods shipped at a port in India, seven and a half per cent 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. (3) Before the departure from any port in India of any such ship, the master of the ship shall prepare and furnish to the Assessing Officer a return of the full 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 sub-section. (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 income and determining the sum of tax payable thereon shall be made under sub-section (4) after the expiry of nine months from the end of the financial year in which the return under sub-section (3) is furnished: Provided that where the return under sub-section (3) has been furnished before the 1st day of April, 2007, such order shall be made on or before the 31st day of December, 2008. (5) For the purpose of determining the tax payable under sub-section (4), the Assessing Officer may call for such accounts or documents as he may require. (6) A port clearance shall not be granted to the ship until the Collector of Customs, or other officer duly authorised 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. (7) Nothing in this section shall be deemed to prevent the owner or charterer of a ship from claiming 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 be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of this Act, and if he so claims, any payment made under this section in respect of the passengers, livestock, mail or goods shipped at Indian ports during that previous year shall be treated as a payment in advance of the tax leviable for that assessment year, and the difference between the sum so paid and the amount of tax found payable by him on such assessment shall be paid by him or refunded to him, as the case may be. (8) For the purposes 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."
The levy under s.172 is a voyage-based summary levy on 7.5 per cent of the carriage receipts of a ship belonging to or chartered by a non-resident, payable by the master, computed on amounts paid or payable in or out of India and including demurrage and handling charges. The return is the master's under s.172(3) and port clearance is withheld under s.172(6) until the tax is paid or secured. An order under s.172(4) is barred after nine months from the end of the financial year in which the s.172(3) return is furnished. The owner or charterer, and no one else, may elect under s.172(7) before the expiry of the relevant assessment year to be assessed on his total income under the other provisions of the Act, and the s.172 payments then rank as a payment in advance of the tax for that year.
Not applicable — this is a statement of statutory text taken from a departmental page and corroborated against a High Court's reproduction of the section. No judicial reasoning is involved.
(4A) No order assessing the income and determining the sum of tax payable thereon shall be made under sub-section (4) after the expiry of nine months from the end of the financial year in which the return under sub-section (3) is furnished:
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Handle my notice → Ask a CA on WhatsAppSection 172 is a self-contained levy that operates voyage by voyage: where a ship belonging to or chartered by a non-resident carries passengers, livestock, mail or goods shipped at a port in India, s.172(2) deems 7.5 per cent of the amount paid or payable for that carriage — whether paid in or out of India — to be income accruing in India, and s.172(4) makes the tax payable by the master of the ship at the rate applicable to a company that has not made the arrangements referred to in s.194. The master must furnish a return under s.172(3) before the ship's departure, though the officer may accept a return filed within thirty days of departure by an authorised person where satisfactory arrangements have been made; s.172(6) withholds port clearance until the tax is paid or arrangements made; s.172(4A) bars any assessment order under s.172(4) after nine months from the end of the financial year in which the s.172(3) return is furnished; and s.172(7) lets the owner or charterer claim, before the expiry of the assessment year relevant to the previous year in which the date of departure falls, that an assessment be made of his total income under the other provisions of the Act, in which case the s.172 payments are treated as a payment in advance of the tax. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 172, section 172(1), section 172(2), section 172(3), section 172(4), section 172(4A), section 172(5), section 172(6), section 172(7), section 172(8), section 44B, section 194, section 195 of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.172, as printed on the departmental Year 2010 page and reproduced in extenso at para 29 of CIT v. V.S. Dempo & Co. Pvt. Ltd. (Bombay High Court, Full Bench, 5 February 2016). Five things in this section decide real money and are routinely missed. First, the base: s.172(8) expressly draws demurrage charge, handling charge "or any other amount of similar nature" into the amount on which the 7.5 per cent is computed, so a ship-owner who thinks only ocean freight is caught is wrong — that sub-section was inserted by the Finance Act 1997 with retrospective effect from 1 April 1976. Second, the words "whether that amount is paid or payable in or out of India" in s.172(2) mean the levy does not turn on where the freight is collected. Third, s.172(4A) is a limitation provision and it is the ground that wins a stale s.172 assessment outright: no order under s.172(4) may be made after nine months from the end of the financial year in which the s.172(3) return was furnished. It was inserted by the Finance Act 2007 with effect from 1 April 2007 and it does not appear at all on the older departmental editions of this section, which is why it is so often overlooked. Fourth, the s.172(7) election is a right of the owner or charterer, not of the master or the agent, and it is time-barred: it must be claimed before the expiry of the assessment year relevant to the previous year in which the date of departure from the Indian port falls. Fifth, the section carries a non-obstante clause in sub-section (1) — it applies "notwithstanding anything contained in the other provisions of this Act" — and that clause is the foundation of both the CBDT's position that ss.194C and 195 do not apply to payments covered by s.172 and of the Bombay High Court Full Bench's reading of s.172 alongside s.44B. Note finally where the section sits: the Supreme Court in A.S. Glittre recorded at para 4 that s.172 occurs in Chapter XV, Liability in Special Cases, under the sub-heading "Profits of non-residents from occasional shipping business", while the marginal heading of the section itself is "Shipping business of non-residents". The word "occasional" in the Chapter sub-heading is what distinguishes this summary voyage levy from the annual presumptive regime in s.44B. If it applies to you, the first step is this: Fix the base first. Add demurrage and handling charges to the freight before applying 7.5 per cent — s.172(8) puts them in — and do not argue that freight collected abroad is outside the levy, because s.172(2) says "whether that amount is paid or payable in or out of India".
As printed on the departmental Year 2010 page, section 172 reads: "172. (1) The provisions of this section shall, notwithstanding anything contained in the other provisions of this Act, apply for the purpose of the levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a port in India. (2) Where such a ship carries passengers, livestock, mail or goods shipped at a port in India, seven and a half per cent 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. (3) Before the departure from any port in India of any such ship, the master of the ship shall prepare and furnish to the Assessing Officer a return of the full 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 sub-section. (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 income and determining the sum of tax payable thereon shall be made under sub-section (4) after the expiry of nine months from the end of the financial year in which the return under sub-section (3) is furnished: Provided that where the return under sub-section (3) has been furnished before the 1st day of April, 2007, such order shall be made on or before the 31st day of December, 2008. (5) For the purpose of determining the tax payable under sub-section (4), the Assessing Officer may call for such accounts or documents as he may require. (6) A port clearance shall not be granted to the ship until the Collector of Customs, or other officer duly authorised 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. (7) Nothing in this section shall be deemed to prevent the owner or charterer of a ship from claiming 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 be made of his total income of the previous year and the tax payable on the basis thereof be determined in accordance with the other provisions of this Act, and if he so claims, any payment made under this section in respect of the passengers, livestock, mail or goods shipped at Indian ports during that previous year shall be treated as a payment in advance of the tax leviable for that assessment year, and the difference between the sum so paid and the amount of tax found payable by him on such assessment shall be paid by him or refunded to him, as the case may be. (8) For the purposes 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." The matter was decided on 2007-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. The levy under s.172 is a voyage-based summary levy on 7.5 per cent of the carriage receipts of a ship belonging to or chartered by a non-resident, payable by the master, computed on amounts paid or payable in or out of India and including demurrage and handling charges. The return is the master's under s.172(3) and port clearance is withheld under s.172(6) until the tax is paid or secured. An order under s.172(4) is barred after nine months from the end of the financial year in which the s.172(3) return is furnished. The owner or charterer, and no one else, may elect under s.172(7) before the expiry of the relevant assessment year to be assessed on his total income under the other provisions of the Act, and the s.172 payments then rank as a payment in advance of the tax for that year.
Not applicable — this is a statement of statutory text taken from a departmental page and corroborated against a High Court's reproduction of the section. No judicial reasoning is involved. In the words reproduced by the source cited on this page: "(4A) No order assessing the income and determining the sum of tax payable thereon shall be made under sub-section (4) after the expiry of nine months from the end of the financial year in which the return under sub-section (3) is furnished:"
It was decided by the CBDT Circulars & Instructions on 2007-04-01 and is reported as Income-tax Act, 1961, s.172, as printed on the departmental Year 2010 page and reproduced in extenso at para 29 of CIT v. V.S. Dempo & Co. Pvt. Ltd. (Bombay High Court, Full Bench, 5 February 2016). 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(1), section 172(2), section 172(3), section 172(4), section 172(4A), section 172(5), section 172(6), section 172(7), section 172(8), section 44B, section 194, section 195, 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. The levy under s.172 is a voyage-based summary levy on 7.5 per cent of the carriage receipts of a ship belonging to or chartered by a non-resident, payable by the master, computed on amounts paid or payable in or out of India and including demurrage and handling charges. The return is the master's under s.172(3) and port clearance is withheld under s.172(6) until the tax is paid or secured. An order under s.172(4) is barred after nine months from the end of the financial year in which the s.172(3) return is furnished. The owner or charterer, and no one else, may elect under s.172(7) before the expiry of the relevant assessment year to be assessed on his total income under the other provisions of the Act, and the s.172 payments then rank as a payment in advance of the tax for that year. It arises in Presumptive Taxation & Audit, Assessment & Scrutiny and Demand, Recovery & Stay matters, on section 172, section 172(1), section 172(2), section 172(3), section 172(4), section 172(4A), section 172(5), section 172(6), section 172(7), section 172(8), section 44B, section 194, section 195 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. 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. Date the s.172(3) return, then count nine months from the end of that financial year. If the s.172(4) order is later than that, take s.172(4A) as your first and, on its own, complete answer. If the ship cannot wait, use the proviso to s.172(3): make satisfactory arrangements for filing and payment through an authorised person and file within thirty days of departure. That is what unlocks port clearance under s.172(6). Work out before the assessment year closes whether the voyage-by-voyage tax exceeds tax on the year's actual income. If it does, the owner or charterer must claim the s.172(7) assessment before the expiry of that assessment year — miss it and the summary levy stands. Check whether a treaty applies before paying anything. Where the shipping profits of the owner are taxable only in the other State under the treaty's shipping Article, the s.172 levy does not survive — but that turns on the particular treaty and on who the freight beneficiary is. Do not read this section off an old departmental page. Confirm that the text you are working from contains sub-section (4A); the editions stamped Year 2000, Year 2001 and Year 2002 do not.
Still good law. Two departmental editions (Year 2009 and Year 2010) print the section identically, and the Bombay High Court reproduced the same text, sub-section (4A) included, in a judgment delivered on 5 February 2016. That is the best evidence obtainable on this pass that the section is unchanged as it stood for the years the Income-tax Act, 1961 governs. It is not the same as reading the current Finance Act: no Finance Act text was retrieved this pass, and I could not establish whether a departmental edition of s.172 later than Year 2010 exists. I carried out no check of judicial treatment of the section as a whole. 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.
The section text above was transcribed in full from https://incometaxindia.gov.in/w/section-172-3, which printed the Act name "Income-tax Act, 1961", the Year stamp "2010" and the section heading "Shipping business of non-residents". It was corroborated on a wholly independent route: the Bombay High Court, in its Full Bench judgment of 5 February 2016 in CIT v. V.S. Dempo & Co. Pvt. Ltd. (ITXA 989 of 2015), reproduced s.172 in extenso at its paragraph 29 and the reproduction matches word for word, sub-section (4A) and its proviso included. STALE-PAGE WARNING, found this pass and not previously recorded: the unsuffixed page https://incometaxindia.gov.in/w/section-172 (Year: 2000), https://incometaxindia.gov.in/w/section-172-2 (Year: 2001) and https://incometaxindia.gov.in/w/section-172-4 (Year: 2002) all print s.172 with NO sub-section (4A) at all — a reader taking the nine-month limitation point off any of them would conclude there is no limitation. https://incometaxindia.gov.in/w/section-172-1 (Year: 2009) and /w/section-172-3 (Year: 2010) both print it. A RETRIEVAL TRAP WORTH RECORDING: on my first read of the Year 2009 page I asked for sub-sections (1), (2), (3), (4) and (7) by name and the page answered exactly that, silently passing over (4A); only when I asked whether anything stood between (4) and (5) did it appear. Ask for every clause in sequence, never a named list. The amending-Act dates are taken from the footnote list printed on the Year 2010 page: footnote 76 records that "seven and a half" was substituted for "one-sixth" by the Finance Act, 1975, w.e.f. 1-6-1975; footnote 79, which is the footnote attaching to sub-section (4A), records "Inserted by the Finance Act, 2007, w.e.f. 1-4-2007"; footnote 82, attaching to sub-section (8), records "Inserted by the Finance Act, 1997, w.r.e.f. 1-4-1976". I did NOT independently verify the Finance Act 2007 and Finance Act 1997 references against the Finance Acts themselves; they are departmental footnotes and are labelled as such. The same footnote list carries cross-references to Taxmann publications; those are the department's own cross-references printed on a government page, not a source used for this entry. I could not establish that any departmental edition of s.172 later than Year 2010 exists — /w/section-172-5 and above were not probed. 'decided_on' is the COMMENCEMENT DATE of the most recent change reflected in this text — sub-section (4A), inserted by the Finance Act, 2007, w.e.f. 1 April 2007 per footnote 79 on the Year 2010 page — and is not a decision date; 'bench' and 'favours' are inapplicable to a statutory entry. 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.
The levy under s.172 is a voyage-based summary levy on 7.5 per cent of the carriage receipts of a ship belonging to or chartered by a non-resident, payable by the master, computed on amounts paid or payable in or out of India and including demurrage and handling charges. The return is the master's under s.172(3) and port clearance is withheld under s.172(6) until the tax is paid or secured. An order under s.172(4) is barred after nine months from the end of the financial year in which the s.172(3) return is furnished. The owner or charterer, and no one else, may elect under s.172(7) before the expiry of the relevant assessment year to be assessed on his total income under the other provisions of the Act, and the s.172 payments then rank as a payment in advance of the tax for that year.
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